Comex Gold futures prices ended the U.S. day session on Tuesday near steady, while the spot gold market was weaker in afternoon trading. Prices are hovering not far above Monday’s nearly five-month low as the bears continue to have a firm grip on precious metals markets. Selling pressure in both gold and silver was limited on Tuesday, most likely by a weaker U.S. dollar index. Some better U.S. home sales and building permits data issued Tuesday morning helped to press the gold market down from its daily high. The improving home and permits data fell into the camp that believes the Federal Reserve will “taper” its monthly bond-buying program sooner rather than later.
THE CHART
Technically, February gold futures prices closed nearer the session low Tuesday. Gold prices are in a four-week-old downtrend on the daily bar chart. Bears’ next near-term downside breakout price objective is closing prices below solid technical support at $1,200.00. The trend for 2013 has been higher equities as that sector clearly has been the investment of choice. Even with the Fed in recent months holding off calls for tapering to its current program, any recent rallies in the Gold have been sold into, creating lucrative selling opportunities for investors. Last week’s probe below 1250 an ounce to a daily low of 1226.4 basis February futures, tells me we may have more room to the downside for Gold, making 1182, which is this year’s low, a prime target for the bears. If you look at the monthly chart dating back to 2007, there is a 61.8 percent Fibonacci retracement at 1159.1
THE TRADE
I propose buying the January Gold 1200 put and selling the January Gold 1180 put. The purchase price for this put spread is 3.5 points or $350.00 in cash value. The risk on the trade is the price paid for the option spread plus all commissions and fees. Option expiration is December 26. Given the enormity of the Fed meeting in Mid-December, my advice would be to hold this trade until the meeting that is unless we see futures prices below 1200 before the Fed meeting.
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For those interested in grains, we will be holding our weekly webinar on Wednesday November 27th at 2pm central time due to the Thanksgiving holiday Thursday. Walsh Trading’s Senior grain analyst, Tim Hannagan will be hosting. Tim was ranked number 1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate price predictions for both soybeans and corn. Here is the link for signup and recordings are available.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
