Profiting from Gold at All-Time Highs (GLD, PHYS, GDX, GDXJ, GGN)

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Gold has effectively decoupled from everything.  Markets rise, gold is up.  Markets fall on uncertainty, gold is up.  Dollar strength, gold is up.  Euro strength, gold is up.  Oil falls on demand, uncertainty, gold is up…. Kitco.com lists today’s spot gold price range of $1242.50 to $1261.80 as being the new high.  We wanted to look at the trading around several key issues.  SPDR Gold Shares (NYSE: GLD), Sprott Physical Gold Trust (NYSE: PHYS), Market Vectors Gold Miners ETF (NYSE: GDX), Market Vectors Junior Gold Miners ETF (NYSE: GDXJ), and The Gabelli Global Gold, Natural Resources & Income Trust (NYSE: GGN) are all on the list.

Our technical analysis affiliate is Adam Hewison of INO and he has a video for “four ways to profit from gold” at highs.  Adam was very bullish in 2009 well under $1,000 and ultimately expected to see $1,200 and higher.

SPDR Gold Shares (NYSE: GLD) just put in a new high today at $123.33 as the new 52-week range is $88.82 to $123.33, implying a $1,233.30 price on gold (after the implied 1% to 2% discount it trades at versus spot gold).  Interestingly enough, some speculators are using longer-dated CALLS out to January-2011 to get upside exposure to gold appreciation:

  • The $140 CALLS traded 1,176 contracts (last $4.20) versus open interest of 57,729 contracts.
  • The $175 CALLS traded 1,867 contracts (last $1.01) versus open interest of 9.496 contracts.
  • The $195 CALLS traded 1,500 contracts (last $0.45) versus open interest of 11,405 contracts.

On May 25, Sprott Physical Gold Trust (NYSE: PHYS) sold 18 million units to buy more spot gold for the trust, and this one got crushed.  Then underwriters took the 3.4 million unit overallotment option as well. Shares fell to $11.40 from $12.46 on the news, a large drop.  The trust has never properly recovered as even today the share price is $11.91 and it has only closed above $12.00 on one day since this offering.  On the May 25 close, the GLD ETF closed at $117.36 and it is above $123.00 today.

Market Vectors Gold Miners ETF (NYSE: GDX) is up almost 2% at %3.94 today and its 52-week range is $34.05 to $55.40.  Its unwanted step-child for the second and third tier players is the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) with a gain of 2.9% to $30.09 versus a 52-week (less because of new fund) of $21.18 to $31.28.

There is another play for income in gold that has some strings attached.  The Gabelli Global Gold, Natural Resources & Income Trust (NYSE: GGN) is about the only gold fund (and other commodity company exposure) that pays a high dividend.  It invests in many vehicles and the income appears to be mostly derived from writing covered calls.  With a monthly distribution having been $0.14 for almost all months, its $1.68 annualized payout and its $16.46 price today implies a yield of 10%.  Keep in mind that this one is much harder to evaluate and it may trade more in line on many days with broader stocks rather than gold.

Again, Adam’s technical analysis audio-video is here.

JON C. OGG