Gold prices fell to start this week giving back some of last week’s gains. Last week’s Gold rally ended with a 3.6 percentage gain, which was Gold ‘s best weekly finish since August of 2015.Jitters over the Chinese economy have spooked global stock markets so far in 2016, sending investors sprinting to safe-haven assets, thus igniting a bid in Gold so far. Investment appetite for bullion also showed signs of picking up in the New Year.
Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, rose 4.2 tonnes last week, data from the fund showed, while holdings have risen 2.1 tonnes so far this week. The precious metal has historically been the most sought after in a risk off environment, and that has certainly been the case this year after a major slump in the Chinese stock market. It is important to realize that external fundamental rallies like these are usually short lived unless they ignite a full blown crisis a la 2008. Should the relief rallies that we saw Friday in China and be short lived and U.S. earnings season disappoint, Gold could be set for further gains. Atlanta Fed President Dennis Lockhart said this week there may not be enough fresh data on inflation to support another rate hike in March. This would most likely push another hike until June which would be considered U.S. Dollar bearish in the near term. In my view, in the near term the precious metals sector will trade inverse of the equity sector.
One trade worth considering for upside exposure in Gold utilizes March options. I think it will be important for Gold to close above the 100 day moving average at 1111.0. Should that happen, it is my opinion that Gold could challenge the Yearly swing number pivot at 1137.0 and the 200 day moving average at 1140.6.
With this in mind I propose the following trade. I suggest buying the March Gold 1130 call and selling 2 March Gold 1180 calls for a purchase price of $2.80 which in cash value amounts to $280.00. The risks on the trade are the costs of the spread plus all commissions and fees.
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. Or please contact me at any time at firstname.lastname@example.org
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.