Gabelli Global Gold Natural Resources & Income Trust—Huge Yield and Capital Appreciation Upside

I’ve been pounding the table with our members since last November to accumulate shares in GGN when it was trading in the high $4’s. After a precipitous drop to start 2016 where it touched $3.60 per share, the price has surged along with the gold complex to $6.05 today. At $4, the yield was 21% per year, 17% at $5, and still just under 14% per annum now at $6. The daily chart below looks quite bullish with a golden cross to start the month, higher highs and higher lows since late January, and MACD that is just turning bullish today. Certainly the ETF is trading quite a bit higher than its lows but does that mean it should be avoided? No. In fact, topped off my personal position on Friday and will add on any significant pull backs into the $5’s. If you take a step back and view the ten year chart below, it’s easy to see that the current move higher is barely a blip on the radar. In 2007-2008, GGN traded between the high $20’s and low $30’s. Currently GGN pays out a monthly cash dividend of 7 cents per share, or .84 annually. This is a very healthy yield to sock away if you feel confident that you won’t lose money on the ETF price itself. GGN uses a covered call writing strategy against the funds mining/resource positions, generating the consistent cash flow. However, as we’ve seen, this distribution can and does fluctuate alongside the performance of the ETF itself and gold mining stocks in general.I believe that we have officially entered a new bull market in gold and mining stocks. If that is indeed the case, GGN will certainly continue not only rising in price, but also in cents per share in dividend payments to shareholders. Say over 2 years we see our investment grow to $10 per share AND receive a 14% annual dividend, I think you and I would be quite pleased. But, I believe that it is even better than that! You see, from 2005 to 2012, the average yield was .14 cents per month or double what we see now. If the yield again begins to climb, the actual yield on money invested at current levels could double! Imagine racking up 28-30% yields and experiencing capital appreciation in the fund itself.We saw a steady deterioration in distributions starting in 2013 when they fell to .12 per month, then .09 in 2014, and finally .07 in 2015-present. But, I believe this trend will reverse potentially as soon as end of year 2016 when GGN can justify a jump back to .09-.10 cents per month. This will simply be because the value of the companies in the fund have increased along with the cash flow on the covered calls. I have recommended to our premium members to make GGN a core holding in their gold mining stock portfolio because of the unique and heavy dividend feature. We also get diversification via the fund’s holdings in various gold mining securities.If we are indeed in a new bull market in gold, now is the time to bolster holdings in vehicles such as GGN. I would not chase the price beyond $6.25 or so. But up to that price combined with accumulation on any meaningful pull backs is encouraged. I don’t recommend my personal strategy for everyone, as it entails leverage and more risk, but it can be considered. I own a large portion of my shares on margin due to low margin rates. As long as I can sell out flat on the ETF itself, there is almost a 10% annual arbitrage between the margin rate I pay and the annual dividend.If you really think about it, my yields on capital are enormous. Use 100,000 shares as an example, which would cost $600,000 approximately. I put up $250K to buy the 100K shares, leaving a bit of cushion on margin. At 84 cents annually, the dividend is $84,000, minus the $18,000 or so margin interest I’m incurring, that leaves $66,000 per year in cash income. I’ve now boosted my yield to just under 27% annually on cash out of pocket! If the distributions return to normalized levels of 14 cents per month, yes I’ll be cash flowing over 50% per year at that point on the initial $250K I put to work now. This is how leverage should be used, where the blow up risk is not high and the yield is juicy enough to pay down your principal risk relatively fast.For updates on GGN, please sign up for our free E-letter in the box below.