Is Now A Good Time To Invest In Gold?

| August 15, 2014 | 0 Comments

goldIn 2011, the price of gold spiked above $1,800 an ounce, the highest it’s ever been. It was all anyone would talk about. Around that time, gold buyers popped up on every corner, a sure signal of a fad.

Three years later, gold is still trading well above historical levels. At $1,300 an ounce, the yellow metal is still a popular investment topic. The gold craze is nothing like it was, but it hasn’t entirely disappeared either.

Lately, widespread geopolitical risk has piqued interest is gold as a safe-haven investment. So, is now the time for you to add it to your portfolio?

Let’s take a step back…

First off, what makes gold so safe an investment? On any given day, you may hear how gold is a hedge against inflation, deflation, currency risk, political risk, and more.

But how can that be?

I mean, are global currencies really going to collapse? Are you going to walk around with a gold bar in your pocket and shave off a piece to buy groceries? Frankly, gold is more symbolic than anything.

Think about it this way…

Perhaps the largest investor in gold, billionaire John Paulson, has a massive stake in gold. And yet, Paulson’s investment in gold is through the SPDR Gold Trust (GLD). He owns over 10 million shares of GLD… that means he’s not even buying the physical metal!

Paulson is clearly not concerned about a government collapse, or he wouldn’t be using an ETP as a means of investing.

Here’s the deal…

What gold really is, is an alternative to currencies.

Currencies can (and do) get crushed when economies falter, political situations become unstable, military conflicts occur, etc. If you own a certain currency, or companies relying on the currency, it could hurt your portfolio if the currency value goes down.

More than anything else, gold is a hedge to currency risk. It’s the place where investors know to go which isn’t tied to a specific currency (although it does tend to move opposite the dollar). The relationship between gold and currencies goes back to ancient times, and it holds today because of the long-standing symbolism.

Okay, so with all that being said, should you invest in gold now? After all, we have a serious conflict between Ukraine and Russian. There are airstrikes in Iraq. And, the conflict between Israel/Gaza is far from settled.

However, despite the instability across the globe, I really don’t see much out there which is going to significantly impact the dollar or other major currencies. In other words, I don’t see a whole lot of upside to gold.

But, I don’t see a lot of downside either. There’s enough uncertainty to put a floor on the price of gold.

In a situation like this, I would avoid buying calls on something like GLD. Instead, this could be an excellent situation to sell GLD puts at a point you wouldn’t mind getting long gold. You could earn premiums over time, and get long the ETP at a price of your choosing.

Yours in Profit,

Gordon Lewis

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Category: Breaking News

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.