Gold broke a four session losing streak Tuesday ahead of the first FOMC meeting of the year. Possible profit taking by recent shorts in the market and a FOMC policy announcement today may have been one reasons gold traded higher during Tuesday’s session.
EYE ON FED
Investors are eyeing the outcome of the two-day Federal Reserve policy meeting. In my opinion, the Fed is not expected to change its stance after deciding only in December to loosen conditions further. However, investors may be watching to see if changes in the membership of the policy-setting committee for 2013 could signal a shift in the future.
BIG DATA WEEK
The first estimate of U.S. fourth-quarter gross domestic product is also slated for release on Wednesday, followed by the widely watched non-farm payrolls report on Friday. Also, investors in Europe are possibly looking to Spanish GDP data and Italian and German debt auctions on Wednesday, and the first big day of European earnings on Thursday to confirm the improving outlook for region. Official data on China’s giant manufacturing and services sectors due on Friday may also be important in my view, especially for commodities markets. With all the data scheduled in the next few sessions, I believe traders evened up on positions in both gold and silver Tuesday.
SHORT TERM POSITION PLAY
I believe that this recent dip in Gold prices could be a buying opportunity for investors. Therefore, I am proposing the following trade. I am looking at buying for a very short term position trade, the March gold 1725 call for a premium of three points or a three hundred dollar risk. The risk here is the premium or cost of the option, which in this instance is three points or in cash value $300.00, plus commissions and fees. Due to the fact that economic data continues to have mixed results in my view, I feel that the Fed may leave asset purchases at their current levels.
Under this scenario, I feel commodities, especially gold, may resume the rally that was seen for much of January, and that the 1700.0 level might be even surpassed. My exit strategy will be that if the underlying gold futures can reach 1700.0 by the first week of February, to exit or close the trade for 10 points or better, minus all commissions and fees.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 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.
