If you have physical Gold or have an investment interest in Precious Metals here is an interesting bit of data I came across. The Chinese who in my opinion are the World’s number one consumer and producer in Gold have been said to be out of the physical market for the last two months. They all but said so in early June hours before that month’s unemployment report. However, the price has held or risen nicely in the last week and is challenging the all-time high at 2454.2 made in late May. A recent survey from the World Gold Council showed 29% of central banks intend to increase their gold for reserves. It is my belief that gold demand has the potential to increase materially over the next year, at least as the world gets more dangerous and as everything else is under attack in one way or other. The Chinese may come back as buyers as well. Traditional sellers have been the banks in my view. They simply sold the Board against their physical holdings as hedge. That may have changed over the past few years as Chinese buying has been insatiable along with Central banks and many nations have looked to increase their physical holdings. Does it mean we will rally moving forward? No, it does not. But I think given the chaos/circus that is the US Presidential election, and with geo-political issues all over the World, it is my view that the path of least resistance is higher from here.
Trade Idea
Futures-N/A
Options- Buy the at the money Oct Gold 2440 call. Sell the Feb 2600 call. EGCG25C2600:V24C2440[DG] Collect 5.0 points or $500 from entry minus trade costs and fees.
Risk/Reward
Futures-N/A
Options-Unlimited risk here as one is short a gold option with a late January expiration. That said one can place a stop loss order at 11.0 Feb 25 over, a risk $600 plus trade costs and fees.
I’m looking or Oct Gold to trade to the 25% threshold higher on year that could put futures near 2585. That would put the near-term call deep in the money by $140 possibly versus the short call. I would exit at this level.
This is just one way to trade this market, not THE way.
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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