Gold futures took it on the chin again last week losing ground as the greenback rallied and global currency markets fluctuated violently in whipsaw fashion. Since Gold made multi month highs at the $1232 level a few weeks prior, Gold has been steadily sold into as stock prices rallied and the U.S. Dollar went bid.
Fedspeak
Janet Yellen’s speech two weeks ago has put Gold and Silver on the defensive in recent sessions as she cemented the Fed’s pledge to raise short term interest rates sometime by year’s end. Last Friday’s monthly jobs numbers did the Gold bugs in yet again as non -farm payrolls increased 280K last month, the largest gain since December, above the 225,000 that the Street expected. Spot Gold fell as much as 1.1 percent to its lowest level since March 19th at 1162.1.
What’s next?
Going forward the Gold market will most likely continue to move in an inverse relationship with the U.S. Dollar. Friday’s unemployment numbers all but cement a rate hike coming this fall. Although there is a Fed meeting mid June we have clearly reached a threshold concerning unemployment at 5.5 percent where rates will finally rise. I look for the gold market to consolidate into the FOMC on the 16th and 17th, however retail sales and housing data this week and next could alter Gold’s direction.
Big support zone
It will be interesting to see if Gold can hold November’s lows or if this recent dip will ignite physical buying in Asia and elsewhere. Obviously the market will have its eye on the Greece debt debacle and the ever growing drama there, whether though that ignites some safe haven covering remains to be seen.
Gold currently sits below the 20, 50, 100, and 200 day moving average which is technically bearish. The market will see strong support below 11.51 down to the 12 month lows at 11.32. If that level gets taken out, look for 11.12 to be tested as that is the first support for the year.
Trade
Using this premise I would consider the following trade. I would propose buying the August Gold 1130 put while selling two August Gold 1090 puts for 1.50 or in cash value $150.00. There are two risks on this trade with the first being the cost of the trade plus all commissions and fees. The second is that you are short one extra put at 1090. If the underlying August futures settle below 1090 at option expiration in late July, one would be long July futures at 1090 as the extra put would exercise in the money. In this scenario however one would also collect $4,000.00 as the long 1130 put and one of the 1090 puts would exercise against each other.
Webinar
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 PM central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar 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.
