Owning gold during turbulent times, like right now, makes sense.
Gold is one of the few things that can hold its value in tough times. Throughout history, gold has been a hedge against calamity and a safe haven during the onset of inflation. And the Federal Reserve is doing everything in its power to cause inflation.
[ad#Google Adsense 336×280-IA]Unfortunately, investing in gold comes with two problems.
The first is where to store it… Gold is heavy, and it needs someplace safe. Some “gold bugs” even bury it in their backyard.
The other problem is, gold doesn’t generate any income. Unless you own a well-run mine that passes on cash flow to you, gold is just a boring hedge with no income.
I’ve found a secret that solves both of these problems. Here’s how it works…
Today, you can buy the SPDR Gold Shares Trust (GLD). GLD is an exchange-traded fund that buys and owns gold bullion. By owning shares in this “trust fund,” you own actual gold… and the trust stores it for you. That solves the first problem: storage.
But simply investing in this fund doesn’t fix the income problem. The gold just sits in the trust’s vaults, gathering dust. The trust doesn’t pay a dividend.
So in order to get some income from your pile of gold, you can sell covered-call options on the shares. If you’re not familiar with trading options and find the idea uncomfortable, rest assured. This call-option strategy is easy and safe. In fact, the upfront income this trade generates makes it safer than simply buying shares in GLD.
Selling a call option gives someone else the right to buy your GLD shares at a specific price (the “strike” price) before a specific date (the “expiration” date). In exchange for that right, the investor pays you money upfront (called the “premium”).
Here’s one way to think about it…
Selling these covered calls is like owning a rental house… and giving your tenants the right to buy your house at a predetermined price, which is higher than the current value. In other words, it’s a very, very safe investment.
You collect “rent.” And if the price goes up, you get the gains up to a predetermined price.
So if your GLD shares never trade for more than the strike price, you keep the premium and the shares. If the share price exceeds the strike price on or before the expiration date, you sell your shares, book any profit up to the strike price, and still keep the premium.
When gold is in an uptrend – like it is right now – I expect you can make a safe 10%-15% a year with this strategy.
The best calls to sell have a strike price 5%-10% above the current price and expire in six months or so. Those will give you plenty of cash upfront and still leave you some upside on your shares.
If you haven’t sold options before, you should talk to your broker about the best way to take advantage of this opportunity. Please don’t rush out and do anything you don’t understand.
But as I said above, this trade is one of the safest, easiest ways to own gold. It’s a fantastic hedge against calamity and the collapse of the dollar. Plus, with 10%-15% annual gains, you can earn more income than the best dividend-paying stock in the marketplace today.
Here’s to a healthy and wealthy retirement,
Dr. David Eifrig
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Source: Growth Stock Wire