Will The Resurgence In Gold Hold Up?

| May 1, 2013 | 0 Comments

I mentioned in an article a couple weeks ago that is was likely too soon to give up on gold.  The article was written after the price of gold has fallen off a cliff.  I felt that gold was too important of a safe-haven investment to stay depressed this time around.

And, it looks like I was right on.

As of Monday, gold has already gained back half of what it had lost during the recent slaughter.  The price of SPDR Gold Shares (GLD) is currently just under $141.  That’s well under the 52-week high of $174.07, but a solid 8% off the 52-week low from earlier this month of $130.51.

So what’s behind the revival in the yellow metal?

First off, central banks hold a huge amount of gold.  In fact, these banks are hanging on to 19% of the precious metal.  And, they have no intention to sell anytime soon.  As such, there’s going to be a limit to how much gold can drop.

Plus, several key investors, including billionaire John Paulson, are still bullish on gold.  Paulson is the largest investor in GLD.

What’s more, many gold bulls used this recent price pullback as a reason to go out and load up on bullion and coins.  Mints across the globe are reporting a shortage of gold coins as demand has soared.

Here’s the deal…

Despite the lack of inflation and the overall improvement in the global economy, we’re not out of the woods yet.  The world still has a ways to go to get back to full growth, especially in Europe.

As such, gold is going to persist as the single most important safe-haven for investors.  That means there’s a floor on just how low it can go.

One way you could cash in on this floor is by selling puts or put spreads.  Now, put selling in any form can be risky.  So, this option strategy isn’t for everyone.

However, if you believe there’s a limit to how far gold can drop, then it could be a good opportunity to sell puts at that level.  Out-of-the-money GLD puts in June and farther out have lots of juice left in them.

Once again, this strategy can be risky – but it also can be very lucrative if you believe that gold has a floor.

Yours in Profit,

Gordon Lewis

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Category: Commodities

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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