The gold market continued its rebound from mid-month lows at $1321.5, with the precious metal advancing more than $150.00, to close the month of April at $1472.1.
The tally put gold down a total of eight percent for April. While the rebound off the monthly lows has been impressive, the broader outlook on bullion, in my view, remains weighted to the downside below $1504.
KEY EVENTS
Looking ahead to the remainder of the week, gold traders will be closely eying the FOMC rate decision on Wednesday and the highly anticipated non-Farm payroll report on Friday.
Although the central bank is widely expected to maintain its highly accommodative policy, we may see a stronger argument to scale back on quantitative easing measures amid the resilience seen in private sector consumption and the more robust results in corporate earnings. I believe Friday’s non-farm payroll release will be the main event with consensus estimates calling for a print of 150,000 with unemployment rate expected to hold at 7.6%.However, revisions to prior months may be important as well.
I believe part of gold’s bounce could be priced in to the fact investor sentiment sees the Fed keeping its $85 billion of stimulus intact. In my opinion, that may be why we have seen both the stock market and gold rally in conjunction with each other, rather than inverse. I also realize that gold has likely received a bounce from strong physical demand that attracted physical buyers at these new lower levels.
PHYSICAL DEMAND
Sales at the U.S. Mint and Shanghai Gold Exchange have exploded, with physical suppliers demanding higher premiums for physical coins. However, savvy physical buyers don’t like to pay top dollar for goods and I believe they will most likely lay in the weeds for another price drop back to April’s lows.
Announcements from the Fed and monthly unemployment data from the Department of Labor could play havoc with the markets, to say nothing of an ECB rate meeting Thursday. I believe in the short term gold has had it bounce, reaching the much watched Fibonacci levels on its ascent.
In my opinion, with all the data out the next few days, we could see a retest of 1400.
THE TRADE
I will look to buy the June Gold 1400 put and sell the June Gold 1350 put for a purchase price of five points or $500.00. The risk is the price paid for the spread, which in this case is 500.00, plus all commissions and fees. The maximum you could collect would be $5,000.00, minus the price paid and all commissions and fees. That is if both strikes finished in the money at the time of expiration. I don’t expect to be in this trade for long and in fact, I look to exit possibly by week’s end.
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Contact Lusk here for other trade recommendations and to be added to his daily Gold Research Report.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 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. 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.
