Where is Gold Headed?

11/29/2013 6:00 am EST

Focus: OPTIONS

Daniel Gramza

President, Gramza Capital Management, Inc.

Daniel Gramza says there are four specific things he looks at, when he is considering the next possible direction for gold.

SPEAKER:  My guest today is Dan Gramza.  We're going to talk about gold and where he thinks it might be headed into the end of 2013 into 2014.  Dan, there's a lot of political things going on, a lot of fundamental things in the economy.  What do you think about gold?  All these influences, where is it going to go? 

DAN GRAMZA:  Well, I'm not sure where it's going to go, Tim, but I can tell you some ideas I have, and that is I'm bullish on gold.  I think there's enough uncertainty out there in the marketplace that we have excuses that can fuel that move.  You know, we've had some things change in terms of how people are reacting to it.  We've seen some changes with India.  They tried to slow down the consumption of gold in that country which is the largest consumer of gold in the world actually is India, but my bias for that marketplace is I think there's enough uncertainty that's going to fuel a move, and so longer term I'm looking for a move back to the upside.  I think it's struggling, we're going to see a base kind of put in maybe over the next month or two, but towards the latter part of the year I would not be surprised to see that market give us that rally. 

SPEAKER:  One of the things that has been shocking to me is that with all of this infusion of fed money and talk that it's going to lead to inflation at some point, gold has still not reacted in the way you would think it would be in an environment where you think inflation is going to rise.  What's going on? 

DAN GRAMZA:  Oh, that's such a good one, Tim, you're right, it hasn't.  The expectation is what does gold react to?  It reacts to typically inflationary pressures.  It reacts to a weaker dollar.  It reacts to uncertainty in the marketplace.  It reacts to geopolitical issues, right, all those kind of things that do that, and here we do have some things that are bopping out there in terms of the uncertainty that you're talking about but we're just not seeing gold respond to it, and you're right on target, but I think it's also pent-up demand.  People aren't sure where to position this. 

I'll tell you where you and I have seen this before, Tim.  It reminds me of 1990 when Sadam was visiting Kuwait.  When he invaded Kuwait, war is typically a time of uncertainty.  Gold went sideways, so it doesn't always react the way people expect it to, and that was a good example where it did not.  I feel we're in the same phase, but if I had to pick a bias for this market longer term as we look towards the latter part of this year, I would look for it to be to the up side. 

SPEAKER:  All right.  What do you recommend in terms of playing that bias?  Is it GLD, the ETF, is it a long term option, what do you like? 

DAN GRAMZA:  I think there are three choices that you and I have, actually four.  GLD is one, the ETF.  It's gold backed, it's a good ETF, it's liquid.  I think that's something to look at.  Options on GLD would be something to look at.  Futures, gold futures, what I find interesting about those markets is that they trade 24 hours a day where GLD does not, so I can work my risk management trade in terms of my stop 24 hours a day where I have to take that risk when it comes to GLD.  Also I have options on the futures, so I think those are our four choices.  They're all good, depends on what someone's comfort level is in terms of trading those markets. 

SPEAKER:  Dan, thanks for your time. 

DAN GRAMZA:  It's always good to be with you, Tim. 

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