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Buy Gold ETF Calls to Hedge Against Uncertainty, JPMorgan Says

Buying options on the SPDR Gold Trust exchange-traded fund can help protect against financial-market uncertainty that is likely to boost the price of the metal, JPMorgan Chase & Co.’s Amyn X. Bharwani said in a note today.

Investors should purchase October $163 calls while selling October $177 calls, according to Bharwani, a New York-based analyst, in a strategy known as a spread that cuts the cost of the trade while capping potential profit. The ETF fell 0.4 percent to $157.72 at 4 p.m. in New York.

JPMorgan’s commodities strategists predict gold will advance to $1,800 an ounce in the fourth quarter of the year amid the European debt crisis, emerging-market inflation and a weak U.S. dollar, the note said. Gold fell 0.6 percent to $1,621.70 today. Countries including India and China have been raising interest rates to combat quickening inflation, while Greece, Ireland and Portugal have been forced to seek external aid to manage sovereign-debt crises.

“Gold remains the universal thermometer of global worries,” Bharwani quoted a July 26 report from John Bridges, JPMorgan’s precious-metals equity analyst, as saying. “We continue to like gold and the gold equities as hedges against uncertainty.”

The call spread trade can be bought for $2.71, Bharwani said, and the maximum potential loss is the premium paid, while profit could be as high as $11.29.

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