GLD: Cautious Long

London (Apr 2)  Gold is money; however in today's financial system, it is traded as a paper commodity. One day, we believe that gold will reclaim its throne at or near the center of the world monetary system. Until then, our strategy is to remain long precious metals in a nimble way, looking for any clues that the market may provide for near-term price direction. For an introduction to pricing of gold and the "paper gold" market, we highly recommend that you read this recent article by BullionStar.

The SPRD Gold Trust (NYSEARCA:GLD) provides a convenient way for investors to obtain nimble exposure to the price of gold. GLD has a very tight bid-ask spread on both the underlying security and in the options market. For short-term trading of gold, GLD can therefore be traded with lower transaction costs and spreads than other securities. There are cautions to consider when investing in GLD, some of which are discussed here. For better or for worse, the price of GLD is dependent upon the value of gold in the futures market.

The futures market trades more hours than GLD, and at much greater dollar volumes. As a result, we view technical analysis of GLD to be inferior to technical analysis of the COMEX futures market. We do technical analysis on the COMEX market, and position trade with the GLD ETF. Beyond the trading of GLD, if you believe as we do that there is risk and stress in the financial system, then you should also consider your options for owning physical precious metals.

Source: SeekingAlpha