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GAMCO Global Gold, Natural Resources & Income Trust (NYSE:GGN) invests in energy and natural resources with a short call option strategy for generating dividend cash. Over the past few years. our articles such as GGN: Prevailing Tailwinds Await The CEF, highlighted the importance of a fund such as this for taking advantage of growth while being paid a lucrative dividend. The time approached for our bullish believe to come into fruition. The funds prices broke out from a very long period of consolidation. The price, tracking fundamentals, seems poised for even higher prices. Grab your magnifying glass, put it up in front and let’s start looking around.
The Fund
The fund defines itself as:
“a non-diversified, closed-end management investment company that seeks to provide a high level of current income. . .. Under normal market conditions, the Fund will attempt to achieve its objectives by investing at least 80% of its assets in equity securities of companies principally engaged in the gold industries and the natural resources industries.”
It also sells call options for generating income, hopefully at sufficiently higher prices which avoids shares being called.
The top ten holdings shown in the next slide include the major oil and metals companies.
GAMCO
The company also provides a daily update of
GAMCO
At the last day before publishing the NAV equaled $4.07 with the share price closing at $4.10 remaining under the NAV and ever essential difference to follow.
The Fundamentals
Most of the holdings include gold assets or crude oil producers. Following the pricing for the two commodities is essential. Let’s view gold first. From a chart, we included with GGN: Prevailing Tailwinds Await The CEF, illustrates the inverse relationship between gold and interest rates.
MacroTrends
Although interest rate cuts are still on hold, analysts expect at least minor cuts this year. This will add to the bullish stance.
Gold broke out from its $2000 price point of resistance shown in the next chart.
KitCo
The breakout at $2000 from a $1000 base suggests a possible move of $700 more dollars to $3000.
Additional forces outlined in 3 Catalysts That Could Push Gold Prices Even Higher include heavy purchasing of gold by central banks and hedges against inflation. From the article,
“Following on from a surprisingly robust performance in 2023 we see further price gains in 2024, driven by a trifecta of momentum-chasing hedge funds, central banks continuing to buy physical gold at a firm pace, and not least renewed demand from ETF investors.”
Next, a discussion of oil fundamentals follows. We wrote in Crude Oil Prices Turn North Following Long-Term Fundamentals,
“Crude prices in the low 80’s sit at a resistance/support level. A retreat signals resistance while a breakout signals support. The next point of resistance is the $110-$120 range. If the market breaks $85, expect $100+ or $15+ higher.”
At the time of publishing, crude’s price is near $90. For reasons argued in the article in particular demand strength, we expect $100+ prices during the early portion of summer before retreating through the balance of the season.
Both commodities reside in a bullish stance for a significant period of time going forward.
Options
In the strategy, management sells covered calls. In the past, we look at the top ten holdings, the prices and the strikes on the calls. The purpose illustrated how effective management was in setting strikes high enough in order to not having shares called and yet generate the cash needed to pay the dividend. In this analysis, we use a different approach. We have been following the NAV posted daily on the website and compared it with values posted in the annual or six-month reports. Management in the past had sold enough calls to cover most if not all of the shares. Once strike prices are hit, asset growth slows or stalls. A table reviewing the current asset value and two other past values is included next.
| Net Asset Values (Millions) | June 2023 | December 2023 | Current Value |
| NAV | $600 | $613 | $706 |
| Cost Basis vs. Actual Value | $770 vs. 705 |
It is clear that within reason thus far total net asset values are following fundamentals being 15% higher. Since the beginning of the year, crude oil is up $15 from $73 or 20% while gold is up $300 from $2000 in early January or 15%. Within reason, management is maintaining a lucrative strategy.
Looking Ahead
We added a day chart of the fund generated using TradeStation.
TradeStation Securities
GAMCO Global Gold, Natural Resources & Income Trust broke out and we expect it to continue higher even possibly into the middle range with the major holdings continuing its bullish posture.
Risks
We begin with risks stating that this isn’t a long-term holding such as one similar to Coca-Cola Consolidated, Inc. (COKE). This is a medium term, few years, trading entity in our view. A recession is a negative risk for the oil assets. Gold is on a roll and isn’t likely to be stopped anytime soon. Major world counties such as China are buying gold feverously and gold production seems stalled. With this in mind we gladly continue our buy rating. At some point this will become a sell in that we don’t expect the dividend to increase with price thus the yield will likely fall below our desired value. Until then, it is a buy.
