Good Time To Buy A Little Gold

Market Summary

Gold crashed below its recent trading range to six-month lows as upbeat U.S. economic date has diminished the appeal of so called "safe-haven" investments. Of course the news that billionaire investors George Soros and Louis Moore Bacan dumped holdings of gold exchange-traded products contributed to the "herd" mentality of investors stampeding to dump the precious metal. The U.S. dollar is displaying strength compared to other currencies and this is pressuring commodity prices. However, technically, gold was severely oversold and the price should stay above the current level. As we can see in the GLD ETF daily chart below, the $152 support level has held up and the price has always recovered when it reached oversold levels.

Investor Analysis

As confirmed in the chart above, gold hit bottom last week but has staged a strong recovery over the past few days. Gold futures rebounded Monday from last week's selling to score their biggest gain of the month, as analysts say recent report hinted at a potential bottom for the metal's prices. Investors also are reconsidering gold's safe-have appeal after voting results from Italy's election and a rating downgrade on the United Kingdom.

Possible Strategy

Above a daily chart for the SPDR Gold Shares (GLD) exchange traded fund (ETF). GLD is a popular ETF investment that seeks to replicate the performance, net of expenses, of the price of gold bullion. Investors interested in participating in the 'gold rush' can buy into the actual GLD ETF. Or a more cost effective option might be to purchase GLD call options. Purchasing the end-of-March Quarterly expiration GLD $154.00 strike price call option would cost approx. $3.00 per share (based on yesterday's close), but would generate gains the further gold moved higher prior to March 28^th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay