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Turn Your Precious Metals

By Jeff Clark
Tuesday, February 10, 2009

"Get cash for your scrap gold!" cried the man on the television screen.
 
A lady in the commercial, who was fanning herself with a stack of $20 bills, announced, "I went on vacation with the money I got."
 
What a great idea. After all, we all have chunks of gold just lying around collecting dust. So why not turn them in and raise some cash?
 
But as I was scavenging through the musty boxes stacked in the garage for my old high school class ring, a pair of gold nugget-shaped cufflinks I got from an ex-girlfriend, and a gold-plated microphone I won many years ago in a Hong Kong karaoke contest, something occurred to me...
 
If I exchange my gold for cash, then I'm losing my hedge against inflation and all I'm gaining is pieces of paper that will eventually be worthless.
 
Of course, right now, I can take those pieces of paper down to the grocery store and buy a gallon of milk and a loaf of bread. So far, the folks at the local Piggly Wiggly haven't been all that keen about swapping food for my old dental fillings. Well, at least not yet.
 
And that is the problem with owning precious metals... They don't create cash flow.
 
You can buy a bond and get interest, buy a stock and get the dividend, or even leave the money in a savings account at a bank and still get something. Precious metals, on the other hand, don't earn anything.
 
This presents a problem for retirees, people living on a fixed income, and investors who just want to get paid something for owning an asset. Precious metals provide a hedge against inflation and against a drop in the value of the dollar. But they don't generate any income.
 
Unless... you get a little creative. That means selling covered call options. Let me explain...
 
A few weeks ago, I told you 2009 would be the year of the precious metals. I told my Advanced Income subscribers the same thing back in October. Since then, we've generated a 27% return in four months selling calls against Yamana Gold, a 41% return in two months selling calls on Hecla Mining, and a 13% return in just one month off an investment in a silver exchange traded fund (SLV).
 
The neat thing is none of these stocks have gone up all that much. Nearly all the gains have been from selling covered calls against the shares.
 
We're holding on to our precious metals investments. Yet we're still generating huge cash flow. It's the best of both worlds. And it's a way to turn an ordinary, conservative investment into an income-generating machine.
 
Best regards and good trading,
 
Jeff Clark




Recent Articles
Market Notes
A recovery for Internet stocks… Amazon, Yahoo, and Google near three-month highs.
 
Regional banks still falling... SPDR Regional Banking ETF down 48% from 2008 highs.
 
Gold falls below $900 an ounce on news of smaller-than-expected government stimulus.
 
Earnings today... CB Richard Ellis, Molson Coors, Terra Industries, UBS.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1223.12 -0.1% +10.6%
Oil 38.22 -0.2% -0.3%
Gold 139.11 +0.8% +22.3%
Silver 29.51 +3.2% +62.6%
US-Dollar 79.17 -1.3% +4.3%
Euro 1.33 -0.8% -10.4%
Volatility 18.02 +0.1% -15.2%
Gold Stocks 590.99 +1.6% +25.5%
10-Year Yield 2.94 -2.7% -15.5%

World ETFs
Symbol Price
Change
52-Wk
USA 122.76 -0.1% +10.6%
Canada 30.56 +0.2% +18.0%
Russia 21.98 +0.2% +17.2%
India 37.92 +0.2% +19.4%
Israel 16.76 +0.4% +10.4%
Japan 10.69 +0.5% +7.0%
Singapore 13.71 -0.2% +18.1%
Taiwan 14.92 +1.0% +20.2%
S. Korea 57.19 -0.2% +21.5%
S. Africa 72.26 +0.5% +29.7%
China 43.84 -1.3% -3.3%
Lat.America 53.21 +0.1% +9.2%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.74 +0.1% +20.2%
Big Pharma 63.99 -0.2% -3.2%
Internet 72.58 +0.7% +25.0%
Semis 16.18 -0.3% +26.4%
Utilities 31.19 -0.3% +1.8%
Defense 18.47 -0.3% +8.9%
Nanotech 10.08 +0.5% +1.3%
Alt. Energy 10.24 +1.6% -2.0%
Water 18.62 +0.7% +13.8%
Insurance 16.08 -0.4% +19.0%
Biotech 20.56 +0.1% +26.6%
Retail 19.59 -0.6% +26.6%
Software 24.65 -0.6% +22.7%
Big Tech 53.85 0.0% +22.1%
Construction 13.20 +0.8% +14.8%
Media 13.73 +0.7% +24.7%
Consumer Svcs 67.38 0.0% +23.4%
Financials 55.01 -0.1% +5.7%
Health Care 63.90 -0.6% +1.2%
Industrials 63.51 -0.1% +19.3%
Basic Mat 74.64 +0.4% +27.8%
Real Estate 55.35 +0.1% +21.8%
Transportation 91.39 -0.4% +23.9%
Telecom 22.65 +0.3% +16.8%