Gold has been probing higher in recent weeks as expectations for a fall 2015 interest rate hike by the FOMC have dwindled measurably. Despite spot prices rallying from late summer lows up near the 1150 area, prices remain down three percent for the year so far. The biggest culprits that have hampered Gold’s appeal all year have been the decreased appetite for physical gold in China and India and the preferred investment status of the stock market. As for the latter, the mini Dow Jones futures contracts have rallied over 850 points in less than three trading sessions following last Friday’s disappointing unemployment report. The jobs report all but cemented for many investors that the Fed would have to keep rates steady until late in the first quarter of 2016. Sound familiar? Equities have enjoyed the best performance of any commodity sector since 2011 aided by a dovish Fed with the results being rising EPS. A weak Dollar in most cases should buoy Gold prices where dips should be seen as buying opportunities. However it has been the reverse where any rallies in the gold market have been selling opportunities with Gold enjoying no follow through and lack of buying once new near term highs are achieved. Unless world number one and world number two Gold buyers China and India increase their appetite regarding physical buying, I would expect the same type reaction to a zero rate interest policy that the U.S. has been mired in for years.
Despite a somewhat bearish outlook I feel it’s prudent here to be positioned on both sides of the Gold market through the remainder of the year and into January 2016. I therefore propose buying one February Gold 1200 call and selling 2 February Gold 1260 calls while simultaneously buying one February Gold 1080 put and selling 2 Feb Gold 1020 puts. This options package should be bid for $2.00 or less. There are multiple risks on the trade with the first being the price paid for the spread, which in this case is $200.00, plus all commissions and fees. The second risk is should the futures price settle below 1020 and ounce basis February futures at option expiration or above 1260 an ounce, one would be either short or long and extra futures contract should either the extra calls or puts get exercised.
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 next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup. Or please contact me at anytime atr slusk@walshtrading.com
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.
