As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.
Follow Up to Trade Alert - (GLD) UPDATE
Buy the SPDR Gold Trust Shares (GLD) March, 2015 $107-$112 in-the-money vertical bull call spread at $4.35 or best
Opening Trade
2-23-2015
expiration date: March 20, 2015
Portfolio weighting: 10%
Number of Contracts = 22 contracts
You can pay all the way up to $4.60 for this spread and it still makes sense. If you can?t do the options, buy the (GLD) stock outright.
If I add a ?RISK OFF? position here in the form of a SPDR Gold Trust Shares (GLD) March, 2015 $107-$112 in-the-money vertical bull call spread, I can also add an additional ?RISK ON? position in another security and keep my risk under control.
Hopefully, I?ll make money on both sides.
If you are particularly adventurous, you can add similar positions in the Market Vectors Gold Miners ETF (GDX), or in the world?s largest gold miner, Barrick Gold (ABX).
One of my best calls of 2014 was to plead with readers to avoid gold like the plague, periodically dipping in on the short side only.
Gold certainly delivered disappointment in spades, falling 4%, while the US stocks, bonds, and the dollar were on fire. The barbarous relic has been in a bear market since it peaked at $1,922 an ounce at the end of August, 2011.
Gold shares have fared much worse, with lead stock Barrick Gold (ABX) dropping a gob smacking 81% since then, and the gold miners ETF (GDX) suffering a heart rending 74% haircut.
However, the recent price action suggests that hard times may be over for this hardest of all assets. Despite repeated attempts, the yellow metal has failed to break down below the $1,100 support level that I have been broadcasting as the line in the sand.
It rallied $230 off the bottom, and then recently gave up half that move. (GDX) has performed even better, popping 44%. For a sideways to eventually rising gold market, this is a great place to get involved with a short dated call spread.
The Chinese are far and away the world?s largest gold buyers. So when the Chinese Lunar New Year rolls around, the biggest participants disappear. That explains where the latest triple digit dump came from. This will end soon.
Few people realize how small the gold market is. All of the gold mined in human history, from King Solomon's mines, to the bars still in Swiss bank vaults bearing Nazi eagles (I've seen them) would only fill 2.5 Olympic sized swimming pools.
That amounts to 5.3 billion ounces, about $8.6 trillion at today's prices. For you trivia freaks out there, that is a cube with 66 feet on an edge.
China is the world?s largest producer of gold (13.1%), followed by Australia (10%) and the US (8.8%).
The problem for gold bears is they?re not making it anymore. Production has been only rising incrementally in recent years, reaching 2,860 metric tonnes, or 100.9 million ounces in 2014. This is worth $116 billion at today?s prices (see chart below).
That would rank gold 5th as a single Fortune 500 company, just ahead of General Electric (GE). It is also only .38% of global public debt markets worth $40 trillion.
That is not much when you have the entire world bidding for it, governments and individuals alike. Talk about getting a camel through the eye of a needle!
The old inflation adjusted high of $2,300, nearly $400 higher than the record absolute price of $1,928. No wonder buying is spilling out into the other precious metals, silver (SLV), platinum (PPLT), and palladium (PALL).
Like an ugly sister, it is hard to love gold in a disinflationary world. However, I think we are getting ripe for a technical rally that could take up $100 or more from here for the nimble. The recent high at $1,228 seems like a chip shot. That works fine for a deep in-the-money call spread position.
When playing in the gold space, I always prefer to buy the futures, or the (GLD), the world?s second largest ETF by market cap, either outright, or through a longer dated call spread. The dealing costs are far too high for trading physical bars and coins, and can run as high as 30% for a round trip.
Having spent 40 years following mining companies, I can tell you that there are just way too many things that can go wrong with them for me to risk capital. They can get nationalized, suffer from incompetent management, hedge out their gold risk, get hit with strikes or floods, or get tarred by poor equity market sentiment.
I do believe that a true bull market in gold will return some day, just not now. Inflation will make a comeback in the 2020?s. Newly enriched emerging markets will also want their central banks to raise gold holding to western levels, which implies a long term purchase of several thousand metric tonnes.
For all the statistics about gold you?d ever want to read, please visit the World Gold Council at their site at http://www.gold.org/supply-and-demand.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don?t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
If the price of this spread has moved more than 5% by the time you receive this Trade Alert, don?t chase it. Wait for the next one. There are plenty of fish in the sea.
Here are the specific trades you need to execute this position:
Buy 22 March, 2015 (GLD) $107 calls at?????$9.00
Sell short 22 March, 2015 (GLD) $112 calls at..?$4.65
Net Cost:??????????????????.....$4.35
Potential Profit at expiration: $5.00 - $4.35 = $0.65
(22 X 100 X $0.65) = $1,430 or 1.43% profit for the notional $100,000 portfolio.
