Weighing Gold's Options
Latest News by BetterTrades
The SPDR Gold Trust ETF (GLD) has seen burly bullish action over the near term as
investors seek out safe haven in the precious metal. A weakening dollar helped propel
gold over $900/troy oz on January 26th, the highest close since late September.
Analysts have been waiting on demand-push inflation to spark higher commodity prices.
Record liquidity infusions and massive quantitative easing will spark significant
commodity inflation once global economies emerge from the recession. Obama's
projected stimulus plan could serve to further devalue the dollar, adding support to
gold prices.
An investor who believes gold prices will rise could purchase the commodity outright
on the open market or they could wade into the SPDR Gold Trust ETF. A long position
on gold can also be constructed through purchasing shares of a mining company like
Barrick Gold (ABX). If an investor is extremely bullish on gold prices, they could
buy options on GLD or ABX to leverage up the position.
Alternatively, there is evidence for a retracement in gold prices. With gold futures
and indexes tracking gold prices hitting multiple-month highs, some investors might
take profit off the table. Also, a dollar rally or a decrease in demand for gold
would serve to slice into gold's luster.
Investors who think gold prices will fall can sell short the commodity on the open
market. Purchasing February puts on the SPDR Gold Trust ETF or a gold mining company
would also effectively establish a bearish position on gold.
Normally, commodity prices trade with a strong correlation to each other. The
dramatic decline in crude prices since the summer of 2008 directly reflects a
worldwide drop in demand. Other commodities, such as agriculture and industrial
metals, have experienced steep corrections similar to oil. Yet gold has been
relatively resistant.
Gold's safe-haven appeal hasn't matched the fever pitch that U.S. Treasuries have.
But investors have clearly shown their willingness to hide out in gold while equity
prices decline and currency prices fluctuate.
Options on the SPDR Gold Trust ETF (GLD) indicate an entrenched bullish sentiment.
The GLD put-call ratio suggests call options outstrip put options by a 4 to 1 margin.
|
