The Gold market has regained some footing leading up to the New Year holiday and for the first trading session of 2017. The reinflation tone in the market seems to have buoyed the precious metals sector in the last five sessions as talks of multiple rate hikes deep into 2017 by the Fed have rekindled hope for higher prices.
Trend and index following funds coupled with speculative long seemingly have halted their long liquidations from their sizable long positions from late summer. These traders held a long position of over 372K contracts in late July 2016. However that net long has been reduced to just 112,691 contracts as of last week.That is a major haircut on a long position considering a majority of the liquidation occurred post Presidential election. A new year usually brings new positioning and potential seasonal buying in January and up until Valentine’s Day for Gold.
What would aid Gold further would be an influx of physical buying from number one world buyer India. However softening demand for Gold due to demonetization initiatives brought on by the Modi government in late November eroded any increased demand potential. The move by the government was part of a crackdown on tax dodgers and counter fitters by removing currency, and as a consequence curtailed any meaningful gold purchases by India on global exchanges. Aside from the bearish demand tone out of Asia, I believe that there’s enough uncertainty in the market near term highlighted by a new administration in D.C. for gold to potentially trade higher in the next four to six weeks.
Those looking for a trade idea may consider the following. Look to buy the April gold 1200 call for 17 points while selling 2 of the April Gold 1080 puts for 8.5 points apiece. This call/put 1x2 ratio costs nothing if filled at these levels minus all commissions and fees. Look to exit if futures trade and settle below 1125.0 basis April. Should the inflation theme continue, I look for Gold to at least challenge 1200 later in January.
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