Gold Traders Continue to Yawn
Fundamentals
Gold futures are little changed this morning, as traders find little reason to become enthusiastic about the precious metal. The greenback continues to hold onto recent gains on comments from ECB Chairman Trechet indicating the central bank does not favor a Greece bailout. Both the US currency and Gold continue to trade in a range, indicating that traders are a bit confused about their respective directions. Gold's range has been particularly tight during this first quarter of the year. While the strength of the Dollar has been a negative for the metal, stock prices continue to creep higher, which can be seen as supportive. However, the degree to which the SEC's new stringent short-selling rules have impacted the stock market remains unknown. We have not seen stocks sell off with any vengeance since the rules have been instituted, so the slow climb could be a product of having a lack of short-sellers to act the yang to the buyers' ying. One could say that the gains may be unnatural. The Greece dilemma presents a unique situation for Gold traders. On one hand, the instability of the Greek financial system has the potential to spill over into the Eurozone as a whole. Also, it raises the question of who may be the next distressed nation. There have been fears that the US government's debt may be downgraded, which in combination with Europe's woes, could make the government bond market unattractive to investors. Gold tends to strengthen during times of economic duress, which indicates that the metal has the potential to benefit as a result of the aforementioned issues facing the EU and US. On the other hand, European dissent has helped keep the Dollar strong. Like Gold, the Dollar has been a place of refuge for concerned traders. If Europe fails to agree on an aid package and the drama continues to play out, the Dollar could strengthen at the expense of the Euro, making Gold unappealing to traders.
Trading Ideas
Given the fact that the fundamental and technical outlooks for the Gold market remain unclear in the near -term, some traders may wish to take on a longer-term strategy. The fact that the long-term outlook is directionless at the moment suggests that the strategy that some traders may wish to possibly employ might be a directionless trade that anticipates a breakout, such as a straddle. Some traders may wish to buy a June 1100 straddle for a debit of 60.00, or $6,000. Because of the high cost of the trade, some traders may wish to consider selling the put in the event that the market breaks-out to the upside, and the opposite in the event of a downside break-out in order to salvage some value.
Technicals
Turning to the chart, we see the range of June Gold having tightened into a narrower trading range as the quarter has progressed. This tightening of the trading range suggests that the market may be nearing a breakout point. The direction of the potential breakout is unknown. The chart has given little indication as to the direction of the potential breakout, as have the oscillators.
Robert Kurzatkowski, Senior Commodity Analyst
