Karim Rahemtulla (Investment U):
Of all the great investments you could have made in 2009, gold is right up there among the best of them.

The price of gold has surged this year, taking gold shares upwards with it. Readers of my Xcelerated Profits Report have rung the register with 45% profits on Goldcorp (NYSE: GG) and a triple-digit winner on Golden Star Resources (NYSE: GSS). We’re also up big on Yamana Gold (NYSE: AUY) at the moment.

All is good, right?

On the surface, perhaps. But not if you believe what the options market is saying…

Yamana Options Signal a Share Price Drop

Using Yamana as an example, the options market is betting that over the next 12 months or so, Yamana may fall from current levels of around $13 back into the single digits again.

Just take a look at the January 2011 $7.50 put options (the right to sell Yamana shares at $7.50), currently trading at $0.70 cents per contract. This means the put buyer thinks Yamana’s price will fall to $6.80 – almost 50% below current levels – in order to be in the money. The $6.80 price is derived from subtracting the price of the option from the strike price ($7.50 minus $0.70 = $6.80). This tale is similar across other gold shares, too.

These put options are expensive relative to Yamana’s share price – the result of gold prices moving sharply in previous weeks and causing the volatility in gold stocks to increase.

As a quick refresher, the price of an option is based on four major factors:

The price of the underlying shares
The options strike price
The time to expiration
The volatility of the underlying shares
Two Ways to Play Gold Prices… But Only One Viable Option

So if you’re a gold investor looking to participate in the market, what can you do to protect your profits, or buy shares at a lower price? Here are two potential ways…

Click here for the rest of Mr. Rahemtulla’s Analysis at Investment U.

• Live Nation Inc. (LYV), the world’s largest concert promoter, said it is buying Ticketmaster Entertainment Inc. (TKTM), the world’s largest ticketing company, for $2.5 billion including debt, Reuters reported. The merger will create a music powerhouse, already unpopular with fans and likely to receive intense scrutiny from government antitrust investigators.

• China inflation continued slowing in January, rising 1%, the slowest pace in nearly seven years. “Inflation could have been close to zero or worse if not for the Chinese New Year, because vegetable prices and grain prices went up,” Wang Tao, China economist at UBS AG in Beijing, told Bloomberg.

• MillerCoors, the U.S.-targeting joint venture between Molson Coors Brewing Co. (TAP) and SABMiller plc (ADR:SBMRY), said fourth-quarter profit slid 40%. The fall is mainly due to the costs to integrate the brands and impairment charges to its Sparks brand, the Associated Press reported.

• Switzerland’s largest bank, UBS AG (UBS), said it plans to cut another 2,000 jobs, this time at its security unit. Chief Executive Officer Marcel Rohner said the bank will return to profit in 2009, aided by help from the Swiss government to split off toxic assets, Bloomberg reported.

• Prices of call options to buy gold have almost doubled since Jan 15, as financial turmoil boosts demand for the precious metal, Bloomberg reported. Options contracts that allow holders to buy 100 ounces of gold for $1,000 each by April  traded as high as $17.50 yesterday on the New York Mercantile Exchange, as compared with $7.70 on Jan. 15. In that same period, options contracts that allow traders to sell gold at $800 by April plunged 82 percent.
• Oil prices fell below $39 a barrel on Tuesday after the U.S. Energy Information Administration revised downward its 2009 global oil demand forecast by 400,000 barrels per day predicting demand will fall by 1.17 million bpd from 2008, Reuters reported. The agency said it revised its demand forecasts on concerns the U.S. stimulus plan unveiled by the Obama administration will not stem the recession.  U.S. crude fell 63 cents to $38.93 a barrel. London Brent traded down 1 cent to $46.01 a barrel.
• Wal-Mart Stores Inc. (WMT) is cutting 700 to 800 jobs at its home office in Arkansas, as the world’s largest retailer looks to realign its corporate structure and reduce costs, Reuters reported. The discount retailer, which has roughly 14,000 employees at its headquarters, is eliminating jobs in merchandising, real estate and marketing in its Wal-Mart U.S. division, while cutting merchandising positions at its Sam’s Club division.
• Cisco Systems Inc. (CSCO) the giant network equipment maker, launched a surprisingly large $4 billion debt sale on Monday, raising speculation that was poised to make an acquisition, Reuters reported.  The offering came on the same day Cisco said it would offer senior notes to help pay back $500 million of debt due this month. The company said it would also use the proceeds of the offering to bolster its domestic cash position of $3 billion to $4 billion.

Source: Global Investment News Briefs Wednesday, February 11th, 2009