Recent stock market selloffs both domestically and globally have lured investors back into the gold market for at least the first five weeks of the year. We haven’t seen the avalanche like sell-offs that the yellow metal endured in 2013. But it’s too early for investors to determine whether if gold becomes an investment of choice for 2014, or if it’s more of wait and sell the next rally.
There are louder whispers among market watchers if the bull market runs in world equity markets have run out of steam. January was unkind to stock market bulls; conversely it was friendly for gold. There is an obvious inverse relationship here that is enhanced due to the Fed’s unwinding of QE.
FRIDAY’S JOBS DATA
The recent release of disappointing U.S. economic data now puts even more importance on Friday’s monthly U.S. jobs report for January. Early pre-report guesstimates for the non-farm payroll number are coming in at 190,000 in January. Note that these so-called experts called for non-farm payrolls to come in over 200,000 for December’s number and the reality was that only 74,000 jobs were created which was pathetic and set the wheels in motion for January’s stock swoon.
Another wild miss for the January Non Farm Payroll number, and we could see Gold finally break out of its recent range. If the number comes in around 200,000, with revisions for the month prior for the better, we could see the stock market and Dollar rally and Gold sell-off on report day.
ON THE CHARTS
Technically, April gold futures prices closed nearer the session low Tuesday. A five-week-old uptrend is in place on the daily bar chart, but just barely. Bulls need to show fresh power soon to keep the fledgling uptrend alive. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at the January high of $1,280.10. Bears’ next near-term downside breakout price objective is closing prices below solid technical support at $1,230.80.
THE TRADE
For a conservative position trade I recommend the following option strangle into the report. Look at buying the March Gold 1190 put and buying the March Gold 1310 call for a purchase price of 7 points or in cash value $700.00. The risk on the trade is the price paid for the spread plus all commissions and fees. I’m looking for the market to either take out either the aforementioned support or resistance levels on report day or the Monday after.
This is a volatility play; if the market remains range bound after the unemployment data I will simply exit both options. This is one of many strategies one could take into a significant report like Friday’s. Also please feel free to call or email me at any time or to be added to my daily gold report list. My contact info is below.
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WEBINAR
For those interested Walsh Trading holds weekly grain webinars on Thursday’s at 3pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and 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.
