Gold is a central theme of our portfolio and there are plenty of quality precious metals stocks in o...
Trading Gold's Major Trend
03/06/2013 1:00 pm EST
CTA Noble DraKoln discusses some innovative ways to trade gold that may make it easier to stay with the major trend.
Over the last few years, traders have really gotten into trading gold on the retail side. My guest today is Noble DraKoln to talk about that and various ways to trade gold. Noble, how do you like to trade gold?
Well, a lot of people don't realize that I am a commodity trading advisor—CTA—so I am licensed to manage funds for other people; and part of that is we're doing a lot of gold trading right now. We're doing spreads; we're going ahead and buying the over-the-counter market. Everything is about precious metals right now.
What's your idea in terms of gold pricing? We have a big rally here. Where do you see it coming in the end of 2012?
Well I have been doing this for a long time-20 years in the business-and every year that I have been pushing gold—I think my earliest newsletter was 2002 when it was $300 or $400—I have been telling people to buy. Since then, it has moved up each and every time. Based on inflation, gold should be approximately $2400; and with QE3, it could go even higher.
I was going to say it just seems like it should be $2400 with QE3; and yet you want to be measured, I guess, in your expectations of gold. Are there ways you will play that up and down—it is obvious it is not going to go straight there—but ways to play it up and down all the way there?
Okay; so there are a couple things that you have to think about. Are you going to be a long-term trader, or are you going to be a short-term trader trying to capture and scout? The reality is gold has reached-every year for the last 11 years-a new nominal high; so regardless of the ups and downs, if you are in it for the long term, then you can just sit in the position and ride it out. The way to do it, though, is you're not going to be able to do it in the futures market. You're not going to really be able to do it in the options market. The smart way to do it is in the over-the-counter gold market.
All right. What is that? That is not futures? That is something else.
It is something completely different. Right now, OTC has really kind of taken over because it is a little bit easier for people to get involved, because they actually own it. The gold markets own the physical gold, and they get a loan against it. That loan itself is collateralized by the gold they hold; so now they own the gold. They own the position, and if they need to at any given time, it gets delivered to them.
I was going to say, do they actually take physical control of it?
Yeah. We have a lot of clients who end up taking physical control, and there are a lot of major FCMs that are doing it; FC Stone; several other ones that are actually in the OTC business giving people the ability to collect their metal if they need to but in the meantime, give them the financing necessary to operate.
All right. What does this cost—I am sure there is a cost in there—in the financing.
The financing varies. It can vary from 6% to 9% just for the overall financing, but it really is no different from futures. Cost, insurance, and storage are all built into the futures price already, and we're already paying that. That is why there is a difference in contango and backwardation when it comes to futures; so it is all built in. You see it; so it is the same thing. It is no different from what you would do in futures except you actually get to hold the metal and not some certificate or paper.
All right. Is there a website or something—your own, maybe—we can refer people to?
People can always go on my Web site, Speculator Academy, or they can go to Second Tier Capital, our brokerage firm, to learn more about it.
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