As you know, I’m a gold bug. I’m quite bullish on the yellow metal. I have been recommending gold since 2001 and I expect gold to run much higher. You should own some gold in your portfolio as an insurance policy, just in case the economy gets worse.

Gold is a safe haven in times of financial and geopolitical instability. Gold has often been nicknamed the "crisis commodity" since it tends to outperform other investments during periods of market distress and world tensions.

I mentioned in previous articles that a great way to own gold in your portfolio is to buy the SPDR Gold Shares (GLD).

You can even generate some income on your holdings in GLD by selling covered calls against it.

This simply means selling the right for someone else to buy your GLD shares at a specific price (strike price) until an exact date (expiration date).

Therefore, if GLD were to go up in price – exceeding the specific price (strike) and the buyer of the call exercises their option, you have to hand over your GLD, but you still make a nice profit.

The investor pays you money (premium) upfront no matter what happens with GLD.

If your GLD shares never trade for more than the strike price, then you keep the premium and your shares in GLD.

You want to get lots of cash (premium) upfront and still be able to profit if gold heads higher. So I suggest selling covered calls with a strike price about 15 to 20 percent above the current price of GLD. I also suggest options that expire 4 to 6 months out.

The drawbacks are that you cap the amount you can make in the position, but you can buy GLD back if your position is taken away from you, allowing you to maintain your exposure to gold. Also, if gold goes lower you will lose money but you will still keep the premium that you received by selling the covered calls. Please consult with your broker before acting on this strategy to see if it’s right for your financial situation. I want you to fully understand how covered calls work before you proceed.

Covered call selling can be a great way to reduce the average cost for your GLD position and boost your overall performance.

You can even earn more income using this strategy than from some of the highest dividend paying stocks around. This strategy is very attractive because option premiums are high right now.

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