From the Hard Assets Investor Mailbag

By Brad Zigler

Sometimes the mail just piles up. So it was this week. People seemed to have questions on a variety of topics. Take a peek inside the editor's mailbag to see what other readers are pondering ...

Editor:

I see that options are now available on the SPDR Gold Trust (NYSE Arca: GLD). (See "Options For Options.") Where can I learn to trade futures and options on GLD? - Monica

Monica:

You'll find GLD futures and futures options listed on the OneChicago exchange. Unfortunately, no open interest has yet developed in either contract series. You can find out more about these markets, though, here.

Options on physical GLD shares trade on the Chicago Board Options Exchange. You're in luck there. There is open interest in the CBOE contracts. There's also a wealth of information on options trading available through the exchange's Learning Center. Visit http://www.cboe.com/ or you can enroll in free education programs through the Options Industry Council.

Good luck.

Editor:

I'm looking forward to the upcoming web debate between Peter Schiff and Mike Norman (see "Clash of the Titans").

The title of Mr. Schiff's book, Crash Proof: How to Profit from the Coming Economic Collapse, seems to foretell his stance in the debate.

Rather than a wholesale collapse, aren't we more likely to have a ratcheting down of the United States economy over several years as leadership shifts from the U.S. to the emerging markets? Isn't it more likely we'll see episodic weakness in the U.S. followed by periods of recovery led by emerging market expansion? The end result of this economic "tug of war" would be poorer overall year-over-year performance in the U.S. relative to that of the emerging markets, right? - Paul

Paul:

Your query presupposes something even more basic: that there's destined to be a permanent reversal of fortune for the United States.

Needless to say, there's an ongoing (and upcoming) debate about that. The math, in my mind at least, hasn't been settled. There are plenty of reasons to believe that other nations will rise in economic importance, but there's no assurance that they will "overtake" the U.S.

I'm not so jingoistic to believe it CAN'T happen, but neither am I certain that it HAS to.

Let's suppose, though, for the sake of argument, that the Yanks are destined to get knocked off their perch. There's no reason to believe it happens overnight.

Rome's demise, like its building, didn't take just one day.

Editor:

What did Dennis Gartman mean when he said, "gold's back has been broken"? (See "A Gold Bull Stops Running," and "Hard Assets Heresy.")

Also, what will the price of gold and gold stocks do if the European economy weakens? - Morgan

Morgan:

Gartman claimed that gold's relative strength fizzled, that's all. As a momentum trader, he thought near-term bullish prospects were better, in his estimation, for crude oil, corn and copper than for gold.

Market action seemed to confirm his opinion, too. At the time he abandoned his bullish stance on gold, the gold/oil ratio was 7.8. It's now shrunk to 6.5.

He may not have shunned gold permanently, though. He could return to the yellow metal if it strengthens again relative to other commodities.

If you subscribe to the notion of purchasing power parity, the greenback's appreciation against the euro should make gold cheaper, a reversal of the trend described in "Translating Currencies Through Gold".

Editor:

I have been in an energy fund for the last couple of years, but I'm getting gun shy. Would you please recommend another aggressive place to park my money? - Dale

Dale:

Thanks for asking, but I'm not sure I can help. First of all, I can't very well offer financial advice.

One question did stand out in my mind, however. You say that, after a couple of years in an energy fund, you've turned "gun shy." Of what, I wonder?

If you think that energy's had its run and will now stagnate or retreat, maybe your profits from that sector bet (assuming there were profits) could be reallocated to the most un-energy-like allocation you could find. That would be something decidedly nonaggressive such as long-term Treasuries or inflation-protected notes.

Or are you gun shy of the fund's management? In that case, switching to an energy index fund may be all that's required. You'll take out manager risk with that move.

Parking money in something "aggressive" seems almost oxymoronic. Parking is passive; "invest 'n forget," if you please, while "aggressive" harkens to something that must be monitored and tweaked.

If you're through with energy, what about the other commodities? Would lightening your exposure to energy and diversifying across other commodities make sense? If so, you might consider the (GCC) ETF or the (DJP) ETN.

The first step in making a reallocation decision is to map out where you want to be. Then, you figure out how close you are to being there so that you can use the available instruments to get you on your way.

Good luck.

Comments

[mixter]

If Obama is elected, sell all of your stocks except distilleries and breweries. Then go buy a bar. You will get very rich off people who are trying to forget that Jimmy Carter has been reincarnated as president!