Gold: Reasons for Profit Taking

While I still like Gold to the upside for the long term one has to be cognizant on the potential timing on when pull backs in the market may take place. Despite ABN AMRO increasing their yearend target for price for Gold at 1370.0 an ounce from a previously revised 1300.0 an ounce this week, we could see profit taking emerge for the following reasons. One, we are approaching month end, second the end of the first quarter, and third option expiration for the April futures contract on Monday March 28th. Gold ranged lower this week following through from the weakness we saw last Friday March 18th. However the market recovered trending higher in the early morning hours following the horrendous terror attacks in Brussels. Technical traders used the rally to short the market again off of a downtrend resistance line at 1257.0 basis April futures. The past of least resistance looks to the downside as global equity markets continue to trade to the upside. In my view due to the month and quarterly expirations along with April options expiration, I would consider using a weekly options put strategy for a near term trade.

Considering Gold has impressively rallied over 18 percent for the first quarter as of last Friday’s close (3/18/2016), profit taking could be seen soon if nothing else enters into the market. For a near term trade I propose using weekly options. Using April Week 1 options, which expires on the Comex close on April 1, 2016 I would look at buying the April Week 1  1220 put. The purchase price for the put is $3.80, or in cash values $380.00 plus all commissions and fees. Technically we could see a test of last week’s lows at 1226.0, and with a hard close under this level, see a move down to 1204.0.

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 anytime at slusk@walshtrading.com

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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.

 

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