Gold’s inability to trade at higher levels following last week’s Fed meeting should be a short term cause for concern for the bulls. The concern comes on a few fronts. First non commercial and non reportable coming into this week held a net long of 308K contracts while the net long for Silver came in over 100K contracts. These are still sizable long positions in the market particularly in Gold and from a technical perspective, the inability to take out a trend line (see chart) on the monthly chart could ignite some back and fill. Secondly we are heading into month and quarter end and coupled with any further declines in energies, we could see further erosion in price amid long liquidation and profit taking.
Tuesday’s (9/26) weak close at 1330.4 brings Gold right back within the midpoint of the near term range and weak technically as its sits below the 50 day moving average at 1337. While the Fed noted that a rate hike is most likely imminent in future meetings, with the most likely scenario in December post U.S. election, the anticipation could be seen as a bearish underlier for metals in the near term while provide short term support for the greenback. Look for some more back and fill on the chart as the gold market seems at least for now unwilling to challenge at least 1360 and then 1397.0 (2016 yearly 2nd resistance) basis December futures.
An aggressive play to take advantage of some downside movement in Gold in the near term utilizes November options. For aggressive traders I propose buying 1 November 1300 put while selling 2 1390 calls for even money. The November options expire on October 27th so there is some decent time value remaining. However there is upside exposure especially if the underlying December futures settle above 1390 at option expiration on the 27th, one would be short 2 December futures contracts at 1390 if exercised. I would exit this trade if the underlying future settles above the downward trend line above 1350 on the chart. (See monthly chart).
For those interested I hold a weekly grain webinar each Thursday at 3pm. It is free for anyone who wants to sign up — sign up here. 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.
