Do you think gold prices are moving higher or lower?
Higher 1
Lower 0
Will remain flat 0
Total Votes: 1
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Selling Out of Money Covered Calls on SDPR Gold Shares
Posted: 03 March 2010 08:58 AM   [ Ignore ]  
Total Posts:  49
Joined  2008-05-06

March 3, 2010 - We are totally bearish on the dollar. Washington has no self-control with respect to deficit spending, and lacks the political will, as well as bipartisanship to craft and pass policy to reduce the current national debt.

Consequently, the dollar, in our opinion is on the verge of losing its ‘safe haven’ status. We totally agree with Nial Ferguson who says the dollar is about as much of a safe haven today as Pearl Harbor was back in 1940.

The greenback is increasingly under criticism around the world as a reserve currency with China leading a steady drum beat to replace it as such. Credit agencies have recently warned that if the U.S. doesn’t get its fiscal act in order, our debt ratings will be reduced. And God knows we our recovery is dependent at this stage on our ability to dress up that debt to look as attractive as possible.

So we are bearish on the dollar. We have been bearish on the dollar for years. Ever since Bush started implementing those tax cut strategies and driving the country out of the surplus he started with. In which case, we have been bullish on gold, and advocate the SPDR Gold Shares (NYSE:GLD)as the easiest and most liquid way for investors to gain exposure.

We advocate being long GLD, and with gold prices tipping closer to 2010 highs (112.85), and 52-week highs (119.18), we think there is an opportunity to hedge against near-term profit taking by writing out of the money covered calls.

Our long-term thesis on gold remains bullish, which is why we remain long, but we don’t see GLD breaking out above the 12-month high of 119.18 for at least another 3-6 months. In which case the June 120’s look attractive which would bring in another $2.40 in premiums basically reducing our cost average by the same amount.

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