Gold - Where are you going?

Recently, the gold markets have seen extreme volatility. From April to May, the price of gold nearly increased $100/oz., roughly 12%, pushing GLD toward $97. Worries of inflation and the depreciation of the dollar have fueled gold to its 3 month highs. Contrary to the prior months, June has been retracing gold’s previous gain. For the month of June, gold has fallen approx. $80/ oz., roughly 8%, bringing GLD to $90. Can GLD break the downward momentum? To understand this, we must look at the details.

Below is the 6-month chart for GLD:

We see that GLD has reached several key support levels:
  • 50 Day Moving Average
  • 100 Day Moving Average
  • 6 month Trendline support

These key support levels act as technical pivot points. Pivot Points are technical price points which act as support or resistance levels. If support remains intact, one could assume that GLD will project upward towards its resistance level around $96.50. On the contrary, if support levels were to be broken, the trend could drag GLD lower towards the 200 Day-MA of $85.50.


Would sitting on the sideline and waiting for a clear direction be the smart play? Option traders don’t believe so… Examining the front-month July option contracts, one could assume that option traders are taking a bullish stance on the precious metal.

The overall Open Interest Put/Call Ratio is roughly .55, meaning for every purchase of 1 Put, 2 Calls are bought. This low ratio, inferring a higher call open interest, could be an indicating sign that GLD support levels will stay intact. If the shares bounce off support levels, GLD could test resistance at $96.5.

For those looking to commence a bullish position on GLD, consider the following analysis:

Purchase one July $90 strike call option contract and one July $92 call option contract for a cost of $355 ($2.250 * 100 shares/contract + $1.30 * 100 shares/contract). As a suggestion to hedge your position, sell two July $95 call option contract for a cost of $110 ($.55 * 100 shares/contract).

The final cost for your Bearish Put Spread should be $245 with a Break-Even price of $92.23.

***Note of Caution: If GLD breaks below technical support, a quick downside movement could occur.

Disclaimer: At time written, author did not own any securities of GLD. Author did own AUY Jul Calls. Throughout this passage, opinions are only stated. Trade recommendations are strictly speculative, and do not guarantee anything. I highly advise everyone to do your own research and Due Diligence before investing.


Posted by The H Report at 8:45 PM

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