GAMCO Global: Income from gold

The recent sell-off in gold has created an opportunity for income investors to add to or to establish positions in GAMCO Global Gold Natural Resources & Income Trust (GGN), a $1.2-billion gold-driven closed-end fund.

I'm a long-term bull on gold and I'm an income investor, which is why I'm very bullish on GAMCO Global . I consider it an exceptional income value in today's market.�

GAMCO isn't a play on physical gold, but it provides gold exposure. GAMCO's objective is to invest 80% of its assets in equity securities of companies principally engaged in the gold and natural resource industries.

Its top holdings include many of the world's largest gold miners: Goldcorp, Barrick Gold, Agnico-Eagle Mines and Newmont Mining.
There is a reason I prefer GAMCO to physical gold -- it satisfies an income need. Lack of cash flow has always been a primary criticism of gold. If the objective is to provide income and yield, gold doesn't fit the bill.

GAMCO, however, yields 11.7% -- four to five times that of most gold-company stocks. This is a legitimate income gold-driven investment.

What's more, GAMCO's dividends are paid monthly, not quarterly. This is an under-appreciated benefit. Money has time value, so the sooner it gets to you the better. Monthly payments also make it easier to sync cash inflow with cash outflow (monthly bills).

So how is GAMCO able to generate such an impressive yield? It employs a special strategy to goose yield to investors - covered calls. �

Here's how it works: GAMCO owns gold stocks and then writes (sells) call options on these stocks. The call option gives the buyer the right to buy the stock at a specified price. In exchange for this right, GAMCO collects a premium.

Don't be put off by options. Covered calls is a low-risk strategy that significantly boosts income. Yes, you could get gold exposure through a large miner like Goldcorp, but you would get a 1.2% yield on your investment. Through its covered-call strategy, GAMCO is able to offer a yield 10 times that of Goldcorp.�� �

I'm all about value, and I love sales. GAMCO is on sale. Its shares have historically traded at a 4.1% premium to net asset value; today, they trade at a 0.07% discount.

Back in October, GAMCO shares yielded 9.9%. Today, that yield is nearly two percentage points higher. GAMCO's lower price means you can add an income-generating gold investment at a 10% discount to its October price.



Related articles

• Global manager's bullish case for gold
  
• Silver Wheaton: A gold stream?
  
• Market historian eyes inflation hedges
  
• Newmont: 'Great buy' in gold