Since the release of Friday’s unemployment report, which showed a surprise drop in the unemployment rate gold has remained under pressure.
SLOWER GLOBAL GROWTH
Global economic uncertainty out of the EU was one probable reason for the pullback in price. According to the IMF, in a statement released yesterday, said the global economic slowdown is worsening, while cutting its growth forecasts for the second time since April. It also warned U.S. and European policymakers that failure to deal with their debt crises would prolong the slowdown.
SUPPORT LEVELS
My weekly technical levels for gold have support down at first and 1764.9, and with a close below, the next level to watch is down at 1749.1. Near term low was made on September 26 down at 1738.3. Those are the levels I am watching. The $30 drop the past the few days has offered bargain hunters a chance to return to the physical market.
The fact that central banks have been injecting huge amounts of stimulus provide investors with the confidence that central banks will continue to provide enough liquidity if the global instability continues.
CHINA PRODUCTION UP BIG
In industry news, China the world’s top gold producer churned out 249.7 tons of gold in the first eight months of the year, up 10.3 percent on the year. At these elevated prices for the yellow metal, one can see why production might increase. Investors also continue to look for safe havens as well as diversification for their portfolios due to the aforementioned fact that central banks continue printing money which devalues their currencies.
DIPS ARE BUY SPOTS
It is my contention then dips in the market will continue to be buying opportunities and that option bull call spreads on a conservative basis might be the best bet going forward rather than picking a price at or near support on the futures side.
SPREAD PLAY
One spread I am looking at is buying the Dec Gold 1825 call and selling the 1850 call against it for 4.5 points or a $450.00 risk. Max profit on the trade is $2500.00 minus cost of the trade, commissions, and fees. I have other option trade recommendations for outright option positions as well. Please contact me to discuss other trading strategies.
