Gold futures this week have given back all of last week’s $22.70 rally as a spike in the U.S. Dollar and an unrelenting push higher in equities has quelled last week’s short covering. The ongoing drama that is Greece has yet to produce any final agreements on whether Greece leaves the European Union monetary authority and has at least for this week has put the Euro under pressure along with a basket of other currencies.
Higher equities and a stronger Greenback usually spell doom for the Gold bulls and this week has been without exception, so far. It’s hard to determine what the longer term implications for Gold prices are if Athens and EU financial ministers cannot find common ground or a workable financial solution to a country that clearly has shunned any meaningful austerity programs and that seems to be destined to go it alone as a non financial member of the EU.
On the surface it may seem that the withdrawal from the EU could be bullish for Gold if the perception is that if Greece leaves so might then Italy, Spain and Portugal down the road creating a domino effect. This probably would enhance the investment of non monetary assets like Gold as safe havens amid the uncertainty and the inevitable devaluations of the Euro in the near future. On the other hand should Greece strike a deal and remain in the Euro it most likely will incur investor sentiment of “kicking the can down the road” in regards to future interest payments to the IMF for loans totaling 1.8 billion dollars next week. If reforms are reached the pullback in the Euro could be temporary.
For Gold I would simply look at the Dollar for direction but the fact remains that rallies continue to be sold in Gold as the longer term chart shows that the trend is from the upper left to the lower right. As we head deeper into summer which sometimes ignites physical seasonal buying out of Asia seen as friendly for Gold prices, one might look at this week’s dip as an opportunity to get long provided we hold near term lows down at 1162 level.
For those looking to remain agnostic and have exposure on both sides of the market I propose the following position trades using options. For downside I would buy the October 1150 put and sell 2 October Gold 1100 puts for $1.50 or $150.00 in cash value. For upside protection I would consider buying the October Gold 1220 call and selling 2 October 1270 calls for 2.00 points or in cash value $200.00. There are multiple risks on the trade with the first being the cost of the options purchased plus all commissions and fees. The second risk is that the strategy calls for being short one extra put and short one extra call. Should the underlying futures price settle above or below one of these levels either at 1270.0 or below 10.90 one would be short or long a futures contract at those levels. I encourage anyone looking at this strategy to contact me for proper exit strategies.
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup.
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.
