This is a “golden” time of year according to history. The price of gold typically is moving up this time of year through April or so, before (typically) getting slammed again in the summer.
Recently, gold bulls have been encouraged by the strength in gold in spite of the strength in the U.S. Dollar, indicating what we call “decoupling”. Gold’s price normally has an inverse relationship to the value of the dollar. And since they are both competing currencies, why not?
What most Americans (those who care – the few) don’t realize is that gold has been hitting all time highs in a vast array of currencies, just not the U.S. Dollar.
Gold is again being seen as a safe haven and currency of no one else’s liability.
Even Dennis Gartman is bullish on gold, despite having sold some calls against his ETF position. Gartman feels we might be a bit overbought currrently and suspects golds price will either drop some from here or at least remain where it is.
Covered call writing, which is essentially what the Gartman Letter is doing, is popular investment strategy when one is generally positive on the underlying security – in this case gold ETF – but feels that the price of the asset could come under pressure in the near term or at least not move up dramatically.
Gartman’s actions are a breath of fresh air to this writer as in the past year or so Dennis has seemed to have a tendency to buy just before gold corrects and bail out just before it takes off.
This time, Gartman doesn’t want to get left totally behind.
Writing calls, while limiting ones downside, absolutely caps ones upside, however. A potentially dangerous strategy in my humble opinion.
If one is positive on gold’s prospects, wants a bit of leverage but not so much as to hit the futures market, then a conservative mix of gold stocks might be in order.
Tread carefully here, however, as danger lurks about in these markets. Rely on the advice of experts such as those found in Big Gold.
