Last week’s precipitous fall in gold and silver was a move rarely seen by veteran traders and one of those rare events that won’t soon be forgotten.
I have been watching and trading gold for years and don’t recall a percentage drop of 12 percent in two trading sessions at any time. Reasons for the sell-off were many, but that’s not what matters, it’s where gold is heading from just above the $1400 level. It is my belief, after the selloff and retest of the low near $1321, gold retraced back up through $1400 an ounce, mainly due to profit taking, bargain hunting, and possibly off of news from the last week’s Commitment of Traders report.
COT DATA
The COT report revealed to market watchers that potentially expected to see a significant reduction in the net-long positions across the board for the precious metals complex that activity was mixed, particularly in the gold market.
Speculators added to their net-long gold position in the disaggregated commitment of traders report released by the Commodity Futures Trading Commission, but cut positions slightly in the legacy report. Funds went to a net-long position in Silver in both the disaggregated and legacy reports and previously they were net-short in the disaggregate report.
WHAT IT MEANS
This tells me that individual speculators were likely the ones who liquidated positions or were possibly margined or stopped out. I believe managed money most likely is still in the market. Also worthy of note today was that Goldman Sachs on Tuesday reversed its call to short gold, which it made two weeks ago, exiting their short position with a gain of over ten percent on the trade. Good work if you can get it!
THE TRADE
In paying heed to some Fibonacci retracement numbers, I am proposing the following trade. I am looking at buying the June gold 1470 call and selling the June gold 1495 call for a purchase price of five points, which in cash value is $500.00.
The risk on the trade is the price paid for the spread plus all commissions and fees. The maximum you could collect is $2,500.00, that is if both strikes finish in the money at the time of expiration, minus all commissions and fees. I believe a Fibonacci retracement of the latest price plunge could take futures towards $1470.0-1472.0 by month’s end, or possibly by the April jobs report, on May 3rd.
