Tuesday, May 1, 2012
Gold traders have been a very indecisive bunch lately, as evidenced by the choppy chart. The bull camp is holding out hope that US and EU economic data diverge, which may embolden the ECB to make more aggressive moves. The chart shows plenty of indecision, with trading ranges tightening. Gold volatility, as measured by GVX and GVZ, is relatively low, indicating that option premiums can be seen as attractive. Some traders may perhaps wish to consider buying a near-the-money-straddle, for example the June 1670 straddle for a debit of 45.00, or $4,500. Given the high cost of the trade, some traders may choose to exit the put on an upside breakout, or vice versa.
Gold futures have held steady in recent sessions, likely in hopes that central banks may be more aggressive. Many traders are expected to focus on the parity, or lack thereof, between US and EU economic data. The ECB could potentially lower interest rates to the same level as the US if the group of nations fails to keep pace with the US. This week is loaded with US employment data for traders to digest, with the ADP payroll data on Wednesday, claim data on Thursday, and non-farm payrolls on Friday. The fact that ETF/ETN holdings of the metal have slipped can be seen as a negative if the trend continues, as funds have been a major catalyst of metal demand. If we see strong central bank buying of the metal, it may offset some of the negative effects of lower fund holdings.
Turning to the chart, we see Gold prices consolidating into a narrower trading range, forming a triangle/wedge pattern. This suggests that a potential breakout may be on the horizon. Given the preceding move lower, there is a slight downward bias. However, if prices are able to cross the 50-day moving average and 1700 level on the upside, the market may gain traction. The oscillators are currently at neutral readings, as evidenced by the RSI hovering near 50 and momentum sitting near zero.
Rob Kurzatkowski, Senior Commodity Analyst