The Golden Question
Fundamentals
Gold futures are little changed this morning, as traders look to the currency markets for direction. The price of the metal has been steadily increasing in recent weeks, aided by rising Crude Oil prices and a falling US Dollar. The greenback has been stronger for the past three sessions, but whether this trend can continue remains to be seen.
The Treasury is holding sales of Notes and Bonds this week, which is of keen interest for Gold traders on two fronts. First, the auctions will show what kind of demand there is for US debt instruments. Low demand may suggest traders are concerned about growing government deficits and will continue to enter the commodity markets at the expense of treasuries. Strong interest in the auction can be seen as bearish for Gold. Secondly, the auctions may help determine the near-term direction of the US Dollar.
Fundamental factors seem to slightly favor the Gold market. Rising commodity prices and relatively upbeat economic data suggest inflation could be a factor sooner rather than later. If economic data shows regression, Gold could stand to benefit as a defensive play. There are several question marks for the precious metals market. Physical demand from jewelry and industry has been weak. Also, ETF demand seems to be sputtering a bit. If economic uncertainty does begin to creep into investors' minds once again, Gold could suffer if the inverse relationship between equity prices and the greenback continues to hold true.
Trading Ideas
Given the mildly positive fundamentals and questionable technicals, some traders may wish to consider a bullish to neutral strategy, such as a bull put spread. An example of such a strategy would be selling the September Gold 910 puts (GCU9910P) and buying the September 890 puts (GCU9890P) for a credit of 2.00 or greater. The spread has a maximum profit of $200, which is the initial credit, and carries a maximum loss of $1,800 if the price of the October Gold futures contract closes below 890 on the August 26th expiration date.
Technicals
The December Gold chart is at a very important level for determining its mid-term direction. Prices must maintain current levels to confirm the uptrend line formed by early and late July lows. If prices bounce from the current levels, it suggests prices may continue to move higher and possibly test the 1,000 mark. Failure to confirm the trendline suggests another failed run at 1,000 and that prices could pull back to the 875-900 range in the intermediate future. Momentum is showing bullish divergence from both price and RSI, suggesting prices could rise in the next few sessions.
Rob Kurzatkowski, Senior Commodity Analyst
