Gold has fallen 38% over the last three and a half years; this long downtrend in gold has provided a unique opportunity to invest in gold at a discount, notes Jim Bach in Money Morning.

To do this, the best gold stocks to buy aren't exactly stocks. They're closed-end gold funds as opposed to the typical gold ETFs or open-end funds.

A fund trades at a discount when shares fall below the net asset value of a fund (net assets divided by shares outstanding). When they are above NAV, they trade at a premium.

Closed-end fund managers don't issue new shares as more investors jump in. So as the price of the underlying asset falls with no change to its outstanding shares, the share price can fall below the net asset value. And you are essentially buying gold at a discount.

Money MorningGlobal Resource Specialist Peter Krauth picked two closed-end funds that provide the best alternative way to invest in gold.

The Central Gold Trust (GTU) is a thinly traded gold fund. It has a market value of $785.5 million, with 98.7% of its holdings invested in unencumbered, allocated, and segregated gold bullion.

"This is a closed-end fund, so will often trade at either a premium or discount to net asset value," Krauth said. "Right now, investors benefit from a generous 7.8% discount, meaning they can essentially buy gold at a discount."

The Sprott Physical Gold Trust (PHYS) provides another perk you won't find in many of the more popular gold ETFs; it gives investors direct exposure to gold.

Much like GTU, it is a closed-end fund and is trading at a slight discount of 0.5%.
But that's not the main allure of PHYS. Here's how Krauth broke it down. "The gold is stored in Canada, is not held with a bank custodian, offers the ability to redeem shares for physical gold, and has potential tax advantages for some US investors," Krauth said.

Unlike many other gold funds, you can exchange shares for physical gold. PHYS also allows for investors to take advantage of much lower capital gains taxes than those on gains made from selling precious metals.

After holding PHYS shares for a year, gains are taxed between 15% and 20%. Gold sales are, however, taxed at 28%.

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