Gold Market Special – Taking High Odds Premium in the Ultimate “Macro” Market

Gold Market Special – Taking High Odds Premium in the Ultimate “Macro” Market
Feb

10

2015

Gold Market Special – Taking High Odds Premium in the Ultimate “Macro” Market

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Should you own Gold in 2015?

This was the topic of a recent debate on a major financial network.

Media types love this kind of question. Investors are always interested in gold, everybody has an opinion on it and the talking heads can always find a reason why you should buy or not buy it.

OK, I’ll admit to being one of those talking heads from time to time. However, it’s the reporters that ask the questions (presumably because that is what investors want to know.) It’s our job to try and provide answers.

Should I buy gold? When should I buy gold. Why should I buy gold?

Everyone featured has the answer. Not the least of which are the numerous “gold bug” letter publishers according to whom, the price of gold is always going up. And it’s usually going to $3000, $4000 or $5000 an ounce as the world comes crashing to an end. You’ll be left in your underground bunker with a years worth of canned food, a rifle, and your stash of gold. Thank goodness you listened to them.


“When should I buy?” is a question asked by the common investor.

But there are more rational responses as well.

From a personal perspective, whether it’s CNBC or the local morning show, I try to give these people my best guess. You give them what they want.

As a reader of this letter, however, you probably know that they are asking the wrong questions. “When should I buy?” is a question asked by the common investor.

As one of the “enlightened ones” in our own little private world here, you likely know that the right question is “How Can I make money from Gold in 2015?”

That one, of course, has a better answer.

Owning Gold vs. Getting Paid from Gold

Like many high net worth investors, I own some gold. I’ll admit, I like owning gold. You can hold it in your hands. It’s real. And heck, if the apocalypse comes tomorrow, I’ll still have something with which to buy my rifle and sack of rice. I buy a little every year, regardless of price, because it makes me feel good.


“As an option seller, you want markets to pay you now

You may own some for your own reasons. But I’m willing to bet that making money from it in the short term comes in a little further down the list.

As an option seller, you want markets to pay you now (or at least in the next 3-4 months). That means finding markets with clear fundamentals, bullish or bearish. This can give you added advantage when selling deep out of the money puts or calls.

Remember that you’re not looking to hit home runs here. In fact, you don’t even have to be right. You are simply selecting markets with the least likelihood of behaving in a certain, extreme fashion.

For that, Gold may fit your bill nicely in the first half of 2015.

Fundamentals Aligning for Gold

Unlike most commodities where measuring crop sizes, production numbers and demand cycles is the order of the day, Gold is almost always directly tied to the Macro picture

Euro FX

Euro FX


Past performance notwithstanding, today’s weakening Euro is now acting as a bullish force for gold.

The primary argument against gold in 2015 is the strong US dollar. The bears feel the anticipation of a Fed rate hike will continue to drive up the dollar, keeping pressure on gold prices.

While this certainly may be true, the pressure can only push prices lower if it is not opposed by an equal or greater force pushing up. In Q1, Q2 2015, such a force appears to be taking shape.

This force includes such factors as:


  1. European Quantitative Easing:The ECB’s decision to begin a $70 billion per month bond buying program is bearish for the Euro and unmistakably bullish for gold. As the Euro and other currencies fall against the dollar, international investors seek ways to protect their purchasing power. With the dollar and other US assets already at lofty levels, gold seems like a bargain solution to this dilemma. Indeed gold prices are up 18% already this year in Euros, but only 9.2% against the dollar.
  2. With global interest rates already near zero, and some cases even turning negative (You actually pay the German Government now to buy the Bund), gold becomes more attractive to investors seeking to safeguard their wealth.
  3. From a Macro perspective, a global recovery in commodities demand, should help support prices of all hard commodities, gold included.

It is true a strong dollar will serve as a counterbalance to these forces, especially as the year goes on and the Fed moves closer to taking some action on rates. However, with inflation is not exactly on everyone’s radar screen at the moment and the EU taking action to spur Europe’s and possibly the world’s economy, the Fed may take a more restrained approach to raising rates than some now anticipate. A rising tide floats all boats and the Fed may decide not to start rocking the biggest one, just as the tide begins to come in.

Conclusion and Strategy

Does all of this mean that Gold is set for a big bull market in 2015? Possible but not necessarily.

Does it mean gold prices won’t move lower now or at some point during the next 3 months? Of course it doesn’t.

What it does mean is that with the EU finally on board, Gold has some bullish fundamentals on it’s side of the see-saw. In our opinion, those should be enough to keep a fairly solid floor under gold prices, at least in the first half of 2015 and maybe more.

As an option seller, those are the kinds of markets you want.

June 2015 Gold

June 2015 Gold


Pullbacks in Gold should be good opportunities for selling puts beneath the November lows. We suggest out of the money strikes such as the June 1050 put.

While gold prices rallied in January, recent volatility in global currency markets (ie: Swiss Franc) have also surged volatility levels and thus Gold option values. This has created attractively prices strikes for put sellers.

We suggest using any February weakness in Gold prices as opportunities for selling out of the money put premium – preferably well below November’s price lows.

An example would be the June Gold $1,050 put for a premium of $500 or better. A moderate correction should make this premium available. The June options expire in Mid-May which gives them good time decay prospects. And the investor should profit as long as gold prices do not collapse within the next 90 days – as scenario that seems unlikely given the current global storyline.

As an option seller, you never have to worry about when it’s “time to buy gold.” Your only concern need be how to take money out of the gold market. Selling deep out of the money puts in early 2015 would seem to fit that bill well.

We’ll be watching for opportunities to position our client portfolios in gold during the month of February.

Learn More

Are you a high net worth investor interested in selling options on gold and other commodities?

You may be able to invest directly with James Cordier and Michael Gross, authors of McGraw-Hill’s The Complete Guide to Option Selling. For program details and to see if you qualify, request your FREE Investor Discovery Kit Today at www.OptionSellers.com/Discovery. This comprehensive package is free and there is no obligation.

Learn More about the Kit

James Cordier is the founder of OptionSellers.com, an investment firm specializing in writing commodities options for high net-worth investors seeking outsized returns. James’ market comments are published by several international financial publications and news services including The Wall Street Journal, Reuters World News, Forbes, Bloomberg Television News and CNBC. Michael Gross is an analyst with OptionSellers.com. Mr. Cordier’s and Mr. Gross’ book, The Complete Guide to Option Selling 3rd Edition (McGraw-Hill 2014) is available at bookstores and online retailers now.


Price Chart Courtesy of CQG, Inc.
Fundamental Charts Courtesy of The Hightower Report


***The information in this article has been carefully compiled from sources believed to be reliable, but it’s accuracy is not guaranteed. Use it at your own risk. There is risk of loss in all trading. Past performance is not necessarily indicative of future results. Traders should read The Option Disclosure Statement before trading options and should understand the risks in option trading, including the fact that any time an option is sold, there is an unlimited risk of loss, and when an option is purchased, the entire premium is at risk. In addition, any time an option is purchased or sold, transaction costs including brokerage and exchange fees are at risk. No representation is made that any account is likely to achieve profits or losses similar to those shown, or in any amount. An account may experience different results depending on factors such as timing of trades and account size. Before trading, one should be aware that with the potential for profits, there is also potential for losses, which may be very large. All opinions expressed are current opinions and are subject to change without notice.

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