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Jonathan Poland
Jonathan Poland
Articles (498)  | Author's Website |

Pure Play Leveraged Gold Trade

If a market correction happens in the next 3 to 6 months, these stocks will be well positioned

I don’t look at commodities very often as they are really just bets on direction not real investments, but with the Dow Jones closing in on 22,000, I see more expensive stocks and more uncertainty. The gold trade is becoming more compelling.

With this trade, you have to ask the question: How likely is it that a stock market correction will lead to a spike in gold prices?

In 2008, gold was just hitting its own bull market, having risen from $250 an ounce to over $900 an ounce the September before the crash, which sent gold down with it. A few years later in 2011, gold closed in on $1,900 an ounce, and now almost nine years on the price sits at $1,240 an ounce.

Gold only lost 16% of its value in 2009, rallying 250% in three years while the Standard & Poor's 500 came back just 72% after its value was virtually cut in half. So, by recent logic alone, if a market correction is imminent, gold seems like a great option with at least a portion of your money.

With that in mind, the SPDR Gold Trust ETF (GLD) is the first and possibly best way to trade gold without owning it. It is trading just over $118 per share and tracks the price to a tee and provides the liquidity of a stock. John Paulson (Trades, Portfolio) still owns over 4.3 million shares, about 7% of his total assets.

If you’re in the Peter Schiff camp, agreeing that our currency is overvalued and that the dollar will fall soon, then it could be worth taking a leveraged trade on gold.

The stock with direct exposure would be VelocityShares 3x Long Gold ETN (NASDAQ:UGLD), which gives you 300% of the return on the S&P Gold Index, a reliable and publicly available benchmark tracking the COMEX gold future.

There’s is also the Direxion Daily Junior Gold Miners Bull 3X Shares (JNUG), which seeks a return that is 300% of the return of their benchmark index for a single day. The companies in the ETF are all miners, including the following:

(weighting)

  • Pan American Silver Corp. (NASDAQ:PAAS) 4.26%.
  • Gold Fields Ltd. (NYSE:GFI) 3.86%.
  • Tahoe Resources Inc. (NYSE:TAHO) 3.69%.
  • Evolution Mining Ltd. (NYSE:EVN) 3.58%.
  • Yamana Gold Inc. (NYSE:AUY) 3.42%.
  • Iamgold Corp. (NYSE:IAG) 3.28%.
  • New Gold Inc. (NGD) 3.21%.
  • Centamin PLC (NASDAQ:CEY) 3.19%.
  • Northern Star Resources Ltd. (NST) 3.10%.
  • Sibanye Gold Ltd. (SBGL) 3.04%.

Will the miners as a group do better than the overall price of gold? I’m not 100% convinced, yet if you’re going to be long gold, it might make sense to do VelocityShares and Direxion. This way, you have exposure in both areas, the price itself and smaller companies that could benefit from gold prices.

Disclosure: I have no positions in any of the stocks mentioned in this ariticle.

About the author:

Jonathan Poland
I spent more than 15 years helping DIY investors earn over 30% a year. Today, I help business leaders take those insights and build better assets. I rarely write about stocks that I own. Thanks for reading. Do your own analysis before investing.

Visit Jonathan Poland's Website


Rating: 3.0/5 (2 votes)

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Comments

geoffrey.lennon
Geoffrey.lennon - 1 year ago    Report SPAM

"With that in mind, the SPDR Gold Trust ETF (GLD) is the first and possibly best way to trade gold without owning it."

I've been trying to do my due diligence into the SPDR Gold Trust (GLD). Anyone know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create such a glaring audit loophole? I have not heard a single good reason for the existence of this loophole thus far. It also doesn't help that GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. There are a number of other red flags as well from what I'm reading:

"Did anyone try calling the GLD hotline at 866▪320▪4053 in search of numerical details on GLD's insurance? The prospectus vaguely states "The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody." When I asked about how much of the gold was insured, the representative proceeded to act as if he didn't know and said they were just the "marketing agent" for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors."

"I remember there was a well documented visit by CNBC's Bob Pisani to GLD's gold vault. This visit was organized by GLD's management to prove the existence of GLD's gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this "GLD" bar was actually owned by ETF Securities."

cbsecured
Cbsecured - 1 year ago    Report SPAM

wow geoffrey how many times have you copied and pasted this? I tried an exact search on Google and it returned 372 results! :O are you alone on this or you have colleagues doing this too? There's still a place for GLD for those looking to gain exposure to gold price for trading purposes, not everyone is here to buy and hold gold forever

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