Gold settled at its loftiest level since mid-April on Tuesday as bets that record-low interest rates will persist buoyed stocks. Expectations that interest rates will remain at record lows for some time yet and upbeat Chinese data lifted U.S., European and Asian stocks on Tuesday.
Low interest rates tend to favor non-yielding bullion. Lower interest rates are for sure a supportive factor for gold, and if that idea spreads in the market, it might trigger investor invest there as well. The world’s largest gold exchange-traded fund, New York’s SPDR Gold shares, reported a 5.7 ton inflow on Monday, the biggest one-day change it has reported in its holdings since March 10. Monday’s surge has taken the fund’s holdings to the highest since late April at 790.7 tons, after they fell to their lowest since late 2008 in May at 776.9 tons.
In addition, data from the Commodity Futures Trading Commission showed on Friday that hedge funds and money managers increased their bullish bets in gold futures and options to their highest since March after last week’s strong rally in bullion prices.
GeoPolitical Tensions
Tensions in Ukraine and the Middle East also have supported gold. Russian President Vladimir Putin said on Tuesday he and European Union states had tried unsuccessfully to persuade Kiev to extend a ceasefire in east Ukraine, and the Ukrainian president had veered off the road to peace.
Trading Tactics
With all that being said continued rises in the stock market have capped gains in gold and in my view could continue to do so. Therefore I feel it is prudent to wait for a small pullback in price and then use option strangles to have exposure on both the long and short side of the market. These strategies have worked well in the past two months and those who have taken my recommendations in both gold and silver using strangles have been rewarded.
I am going to the proverbial well one more time and propose the following trade. I’m looking at buying the August Gold 1360 call and buying the August 1280 put for 8 points or in cash value $800.00. The risk on the trade is the price paid for the spread plus all commission and fees. Option expiration occurs on the 28 of July giving the trade three weeks to expand either to new near term highs up at 1350-1360 or to retrace back to the 1300 level and possibly lower. I am speculating that either of these two scenarios takes place and that Gold will not remain at the 1325-1335 level for much longer.
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 this 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.
