As it stands right now, it looks like goldâ€™s consecutive-year rally will end at twelve straight years of gains, making 2013 and year 13 an unlucky number for the gold bugs to date.
Goldâ€™s status as a safe haven has largely been eliminated this year as traders and investors have chosen the stock market as their investment of choice.Â
Global financial institutions most notably Goldman Sachs, Credit Suisse, and HSBC have lowered end of year and the first quarter of 2014 price forecasts. The lowering of gold price forecasts have more than anything deterred any safe haven investment the yellow metal has enjoyed in prior years and therefore has had index and trend following funds selling into any rallies this year in my opinion.Â
The government shutdown over Obama Care and debt ceiling fight have held some markets hostage due to the lack of government data being released most notably the monthly jobs report. As of this post, it appears that a deal to keep the government from default will go down to the last minute.Â Recent price action has been volatile in both the indices and metals over the aforementioned negotiations. Even if a deal gets done, which will undoubtedly end up kicking the can down the road as far as anything substantive regarding budget deficits and debt, may open the window for a ratings agency downgrade, similar to what we saw back in August of 2011. Deal or no deal I believe we will see some extreme moves similar to last week in gold.
I therefore propose having both sides of the gold market covered due to the uncertainty. I propose buying the November gold 1180 put and at the same time buying the November gold 1350 call for 4 points or in cash value, $400.00. The risk on the trade is the price paid for the both positions, which is referred to as a strangle, plus all commissions and fees. Near term highs in the Gold are up at 1353, while the yearly low sits at 1182. The market could soon see one of these levels soon, especially just after the deadline on October 17th.
Expirations for November gold options go off the board Monday October 25th, so in getting into this position, I would advise that an exit occur by early next week, especially if gold does not experience an extreme move in price.
Contact Lusk here.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.Â 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.Â 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.