U.S. Equity prices have skyrocketed higher as the Dow and S&P have scored all time record highs this week. The abandonment of safe haven anxiety following the Brexit has finally spilled over to the Precious Metals sector. With the bond market rally still intact coupled with new highs in equities, it was only a matter of time before Gold felt the squeeze. Non commercial and non reportable funds came in long this week with a massive 347K contract long. Silver came in long over 87K contracts. The market as previously reported came in technically overbought this week. Rarely will you have rising equities, treasuries, and metals all rallying at the same time for an extended period, therefore something had to give. The apparent fallout from the Brexit for investors comes in the probability of no more rate hikes from the Fed this year. If that holds true and the Fed continues to adopt such a policy, equities could be the big winner versus metals similarly to what we have seen the past few years. Physical demand has waned some in India as jewelers there have offered bigger discounts which suggest potential weakening demand amid excess supply. Also there have been a few banks announce to clients this week calling for corrective action in the metals citing extreme long positions in the market. Therefore if the market is to endure more of a corrective break, I would look at a 50 percent retracement from the near term high/low at around 1295.0 an ounce for a downside target near term basis December futures.
In lieu of catching a downward move using options, I suggest selling December mini futures which is one-third of the full contract size at $33.33 per dollar. Consider selling at or near 1250 an ounce basis December, with a target down to 1195. Use stop loss orders for protection per your risk tolerance.
For those interested I hold a weekly grain webinar each Thursday at 3pm. It is free for anyone who wants to sign up and link for sign up 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.
