War with Syria is possibly looming in the coming days amid the enhanced rhetoric supporting the use of military force from the White House and Capitol Hill, and gold has finally garnered some safe haven appeal in the last five to six sessions.
DIPS ARE BUY SPOTS
Recent dips in the market have become buying opportunities in my view due to the increased uncertainty of what this conflict could ultimately turn into. Gold’s performance through the first six months this year had seen the yellow metal fall over 29 percent, a significant drop that was caused by many factors.
However a reversal in sentiment back to “flight to quality” has ignited some longs back into the market across the board from ETF’s to physical buying, and through commodity contracts. Unfortunately, I do not believe military action in Syria will amount to a singular missile strike campaign. In fact Syria and Iran have both pledged to attack Israel if the U.S. and other European Allies launch missile attacks.
GOLD AND CRUDE OIL
If that happens, we could see a wider expanded war with other Arab nations sooner rather than later, which in my view will propel commodity prices of energy and metals to skyrocket. Although this scenario is probably seen as unlikely, it shouldn’t be ruled out, and the increased uncertainty will drive buyers into the gold market in my opinion.
THE CHART
Technically, let’s look at some levels for December gold. A 50 percent Fibonacci retracement from the 2013 high and low for December gold sits at 1443 an ounce. A 62 percent retracement is up at the 1506 level. Above that was the multi-year low for gold at the 1525-1530 level. It was this level that was finally taken out in mid-April that ignited gold’s first avalanche like selloff this year.
THE TRADE
I believe there will be strong resistance up at this level as what once was strong support has now most likely become strong resistance. Therefore I am proposing the following trade to get some long term exposure to the upside basis December gold futures. I will look at buying the December gold futures 1500 call and selling the 1525 call for a purchase price of 4.5 points, or in cash value $450.00.
The risk on the trade is the price paid for the spread plus all commissions and fees. The maximum one could collect however is $2500.00 that is if both strikes finished in the money at the time of expiration.
Please call or email me with other trade recommendations or to be added to my daily Gold report list.
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.
