Is the mainstream press reading the BaerlocherBearing?
and another agreement with Goldman Sachs, maybe they are reading it too?
The good news for gold is starting to roll out. I first published how the fundamentals for gold were looking very strong at the end of October. The mainstream financial press and the big banks have begun to catch on. Bloomberg interviewed the head of Goldman Sachs research division, Damien Courvalin. He expounded on the complicated valuation of gold. He explained that when inflation was subtle and steady, there was no need for gold but now that there are inflation surprises to the upside, gold is looking like a necessary addition to portfolios. Damien believes that gold has been depressed recently and that it was a neglected asset. He believes that gold is at a trough and has the ability to move higher. His base case is that gold goes to $2000.
“At that point and that’s probably early next year. We have to then assess really what are those inflationary risks. Are they building to the upside in which case there’s a clear case for even higher gold prices. Or eventually we finally see signs that this is indeed transitory. So I think the first leg for us is relatively clear after that I think one should be open to further upside.”
Today, Bloomberg interviewed Gary Dugan, Global CIO Office CEO. He sees the strength of gold and believes $2000/oz is easily achievable. This isn’t that big of a stretch. Gold currently trades at $1865/oz, so this would be a $135/oz gain or roughly 7%. Gary stated that he is excited about gold. He elaborated that,
“gold never quite performs when people expect it to. They expect it to kick in earlier when we’ve got an inflation problem, but history tells us it takes a while for the market to absorb the moves and to become a believer. I like to get in early. I don’t mind suffering a bit of losses in the near-term. But I think the metal constantly gets back to $2000 within the next 3-6 months given the direction of inflation at the moment.”
For anyone that was a subscriber to Robert Wenzel’s Daily Alert, this is no surprise. Gold (and silver) are looking attractive and are set to move. The mainstream business news is starting to come to the same realization. This is the herd beginning to change directions. Gary Dugan confirmed it. The market has to wake up to the actions (or in-actions) of the Fed. As more upside surprises happen with inflation indexes, gold becomes more attractive. Some dates to keep in mind:
These days could become big triggers for moves into gold. This will become a bigger deal the longer inflation surprises happen. Once the Fed updates their calendar release dates, I will update these dates.
There are several ways to take advantage of the rise in gold prices. The most obvious is to buy physical gold. This is becoming increasingly difficult as premiums have become very high and supply has become tight. However, this is the most secure way of holding gold. The drawbacks are the premiums when you buy and finding a buyer when you are ready to sell. If you simply want exposure in your stock portfolio, the easiest is to buy shares of a gold trust like GLD or PHYS. Another way is to buy gold miners or gold mining ETFs such as GDX or GDXJ. I prefer a combination of the two.
Another route to go is to sell put-option contracts. By selling contracts you collect a fee for the contract, called a premium. Some traders use this tactic to lower their cost basis in a stock. In my portfolio, I have sold the $166 GLD put with the 12/17/2021 expiration. This means, if GLD goes down below $166 by 12/17/2021, I’m on the hook to buy 100 shares at $166/share. I sold the contract at $1.33/share. Currently this contract is trading at $0.58/share which means I’m booking a profit of $0.75/share. I like to target put contracts that are 30-60 days out and are at levels near- or at-the-money.
In addition to selling put-options, another strategy is to sell covered calls. This is when you own 100 shares of a stock and sell a call to collect a premium on it. Right now I own 200 shares of GDXJ. Since I own 200 shares, I can sell 2 call option contracts (100 shares = 1 option contract). I targeted the 11/19/2021 expiration of the $50 call option and sold it at $0.28/share. If GDXJ were to be above $50 on 11/19/2021, my 200 shares of GDXJ would be sold at $50/share. I would collect the full premium of $28 per contract and, since I bought my 200 shares of GDXJ below $50, I would profit from the sale. At the present the GDXJ call option is trading at $0.19/share. This means that if I were to close this trade out today, I could lower my cost basis in GDXJ by $0.09/share. If it were to expire worthless, I could discount my shares by the full premium of $0.28/share. While this doesn’t sound like much, when you repeat this month-over-month, you quickly lower your cost of stock ownership. I like to sell covered calls that are very short dated. 30 days tops. This is because the shorter-dated contracts lose value quicker. The trader term for this is “theta decay”. It looks like this:
As option contracts get closer to expiration day, they lose value quickly when they are out-of-the-money. I sell calls that are above my cost of stock ownership so that I will always book a profit if the contract ends in-the-money. I like to target strike prices that are well outside of the money so that they have the greatest chance of expiring worthless. When they do, I get to collect the full premium and keep my shares.
In either case (selling puts or covered calls), you can always buy back the contract to close out the transaction early. If you are looking for more information on selling puts or covered calls, you can find it here:
In addition to these basic strategies, David at LiveBetterNow has outlined a few ways to utilize options on 2x & 3x ETFs.