Certainly, all of the conditions are there.
We’ve had several days of pure panic buying. Gold prices are up 25% so far this year and up 90% in the past two years.
The public is buying and, late night commercials aside, it’s clamoring for gold in a way that makes me nervous. Meanwhile, politicians in Washington actually believe they understand the risks associated with credit default swaps and sovereign debt – and that practically guarantees that they don’t.
But what really gets my attention, and gets my greed glands going, is that Washington is now going to “do something.” As if the government hasn’t already “done” enough.
That means another bailout or stimulus is imminent. It also suggests that there will be a corresponding sigh of relief, a decline in volatility and a drop in gold prices.
Then all hell will truly break lose.
But that won’t matter because the damage will already have been done and the profits will already have been banked. Book deals will have been struck and we’ll have a whole new generation of motor mouths at the country club who talk about how “they could have made the trade, too, if only…”
If you want to play along, here’s what to do.
- Buy out-of-the-money SPDR Gold Trust ETF (NYSE:GLD) put options. Because you are buying them, your risk is limited only to what you spend to purchase them.
- And buy out-of-the-money iPath S&P 500 VIX Short-Term Futures (NYSE:VXX) put options. Here, too, your risk is limited because you are buying the options rather than selling them.
But remember, DO NOT invest money you cannot afford to lose completely. Nothing is guaranteed.
Soros, Livermore, Gould and Paulson knew what they were doing when they placed their bets and were prepared for the consequences. You should be, too.
Related Tickers: SPDR Gold ETF (NYSE:GLD), iShares Silver Trust (NYSE:SLV), iPath S&P 500 VIX Short-Term Futures (NYSE:VXX), iShares Barclays 20+ Year Treasury ETF (NYSE:TLT), ProShares UltraShort 20+ Year Treasury ETF (NYSE:TBT).
Written By Keith Fitz-Gerald From Money Morning
Keith Fitz-Gerald is the Chief Investment Strategist for Money Map Press, as well as Money Morning with over 500,000 daily readers in 30 countries. He is one of the world’s leading experts on global investing, particularly when it comes to Asia’s emergence as a global powerhouse. Fitz-Gerald’s specialized investment research services, The Money Map Report and the New China Trader, lead the way in financial analysis and investing recommendations for the new economy. Fitz-Gerald is a former professional trade advisor and licensed CTA who advised institutions and qualified individuals on global futures trading and hedging. He is a Fellow of the Kenos Circle, a think tank based in Vienna, Austria, dedicated to the identification of economic and financial trends using the science of complexity. He’s also a regular guest on Fox Business. Fitz-Gerald splits his time between the United States and Japan with his wife and two children and regularly travels the world in search of investment opportunities others don’t yet see or understand.