Two weeks ago we suggested profit taking may occur in both Gold and Silver ahead of month and quarter end profit taking and in front of the October monthly jobs report. Funds holding sizable long positions in both Gold and Silver had the profit and therefore the risk especially ahead of the jobs report. Commentary from Fed governors seen as mostly hawkish concerning a rate hike by years end had suddenly buoyed the Dollar while equities stabilized. Reports out of India showed declining interest in physical gold purchases year on year in August, which was counter trend seasonal in most years ahead of Indian wedding season in September. What has changed since the $100 selloff in gold since the highs made immediately following the last FOMC meeting??

We noted that a downside target at the 200 day moving average level at 1258.0 basis December futures could be tested on liquidation and sure enough it was and then surpassed to levels not seen since June at 1243.0 basis December on October 7th. It was reported in the Commitment of Traders Report that open interest has declined by 87,000 contracts while the non-commercial/non reportable net long in the market has declined to 289K contracts from over 350K just a few weeks back. This tells me that liquidation is the theme instead of fresh selling entering into the market. Should continued liquidation emerge I believe it will temporary given banking contagion and currency devaluations in Europe that will have ripple effects throughout the global economy. The hyper sensitivity to each headline in the market has created choppy trading in many markets despite the liquidation in the metals. Therefore I suggest short term options going forward in gold.

Heading into the end of week for a very short term trade as far as option expiry is concerned, look at buying a Week 2 October Gold 1280 call and at that the same time buying a Week 2 October Gold 1230 put for 1.5 points or $150.00 plus all commissions and fees.  

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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.