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Liquidity in PurePlay® Instruments denominated in gold, platinum and palladium where ETFs have been established will be facilitated by the PurePlay® Instrument/ETF Instrument arbitrage. Markets seldom start out being liquid but PurePlay® Instruments issued in minerals where there are existing ETFs can utilise the ETF Arbitrage trade to make attractive profits. 

In addition, if at the outset, while the market gets used to the features of PurePlays™, it should trade at a discount to spot, additional profits can be made. The PurePlay® Instrument is an investment in a specific mineral in storage as is an investment in an ETF.

This is what the arbitrage looks like:-

We use gold in the example for ease of reference but the principles will be the same across all fungible commodities.

  1. A gold EFT instrument purchased today will be eroded by costs of about 1.5% on average per annum and actual physical gold will be sold from the gold held in storage to pay for the costs. Thus an investment of 100 ounces of gold in a gold ETF will tend to be eroded to only 85 ounces of gold over a ten year period (a falling gold price will see a higher number of ounces eroded and a rising gold price will see a lower number of ounces eroded).
  2. The PurePlay® Gold Instrument for a similar 100 ounces of gold will deliver 100 ounces of gold to the holder in 10 years.
  3. The holder of a PurePlay® Gold Instrument will therefore have 15 ounces of gold more than the Investor in a gold ETF instrument after 10 years or 1.5 ounces more on a per annum basis.

Arbitrage profits can be made in the event that the PurePlay® Gold Instrument’s price does not reflect this superior cost efficiency, and so the PurePlay® Gold instrument is trading at a discount to the spot gold price or at a discount to the gold ETF Instrument (gold ETF instruments are managed to trade at the spot gold price).

  1. Say that the PurePlay® Gold Instrument is trading at a 5% discount to the spot gold price. We will continue to use the 100 ounces example.
  2. Sell the gold ETF instruments short representing 100 ounces gold and buy PurePlay® Instruments for 100 ounces at a 5% discount which yields an immediate 5% profit while price risks are covered 100 ounces for 100 ounces.
  3. The short gold ETF will lose another 1.5 ounces every year for a total of 15 ounces over 10 years which will be additional arbitrage profits.
  4. Collect 100 ounces at the end of 10 years under the PurePlay® Gold Instrument, sell the 100 ounces, settle the short gold ETF instruments now worth only 85 ounces and pocket the 15 ounces arbitrage profit.
  5. Or trade it at any time, having pocketed the arbitrage profits to date.

Thus the trader of this arbitrage collected a 5% cash profit upfront and collected a 15 ounce arbitrage profit at the end. The net arbitrage profit will have to include the trader’s trading costs and the carry cost of the short but neither will have a material impact on the arbitrage profit. This is a self-funding arbitrage in a fully matched price risk unit but the Investor will have to assess the credit risks and counter party risks from time to time.  If in the Investor’s view the credit risk on the Producer is deteriorating, he can trade the PurePlay® Instrument and bank his arbitrage profits.

Patents and Trade Marks

The Intellectual Property of PurePlay Holdings (Pty) Ltd is protected by world-wide pending Patents.

Trademarks awaiting registration are PurePlay™, Nature’s Vault™, As Good as Gold™ and Sp☼t True Value™.

Contact Details

5 Jan Smuts Avenue,Winston Park
Durban, 3610,South Africa

Tel: +27 31 7670156
Cell: +27 82 4515864
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