Gain exposure in Crude Oil & Gold via USO-C1 & GLD-C1

Recently, OSK issued 2 interesting CWs which would enable investors to gain an exposure to the play on Crude Oil & Gold. You may want to do so if you believe that the economic recovery is slowly gaining traction & this will lead to increase in the price of Crude Oil due to higher demand. A reasonably strong recovery will lead to an inflationary environment where the price of Gold is likely to move higher.

Even if you have this outlook, you have to consider what will be the best vehicle to use. In the case of Gold, you can consider physical gold (eg. coin), gold futures, gold mining stocks or gold ETFs (eg. GLD). For Crude Oil, you have a choice of crude oil futures, oil stocks or crude oil ETFs (eg. USO). To use CWs to gain exposure is a medium-high risk speculation.

I have tabulated the main terms of USO-C1 & GLD-C1 below. Due to the recent sharp correction in Crude Oil (WTIC) & USO, the premium for USO-C1 has widened from 23% at the time of issuance to 39% now as the price of USO-C1 has yet to adjust downwards. You should wait for some correction in USO-C1 (or some recovery in USO or WTIC) before buying. On the other hand, Gold prices did not drop very much since the listing of GLD-C1. This plus the drop in the price of GLD-C1 led to an improvement in the premium of GLD-C1 from 19% at the time of issuance to only 15% now. Is this an acceptable premium in an environment where risk aversion is slowly gaining a foothold? I am not sure.


Table: Main Terms of USO-C1 & GLD-C1

I have appended the charts of WTIC & USO as well as Gold & GLD for your quick reference.


Chart 1: USO's daily chart as at July 13, 2009 (Source: Stockcharts.com)


Chart 2: WTIC's daily chart as at July 13, 2009 (Source: Stockcharts.com)


Chart 3: GLD's daily chart as at July 13, 2009 (Source: Stockcharts.com)


Chart 4: Gold's daily chart as at July 13, 2009 (Source: Kitco.com)