Buy Gold Calls For Move Through $1,000
Gold shot higher Tuesday, and I think we’ll soon see $1,000 an ounce as many market participants are rushing into commodities as an inflation hedge.
In addition, in India, the wedding season takes place from April to June and that should stimulate demand for gold. There is new U.S. dollar weakness (a new record in the euro against the dollar) and record crude oil prices that should push gold past $1,000.
After three declining sessions, front-month COMEX April gold futures rebounded, gaining $4.20 to close at $976 Tuesday. Gold is still off its record above $995 on March 5. I recommend using the pullback off the highs as an opportunity to establish a longer-term bullish position, using options.
I would consider buying the June gold 1050 calls, which would cost $2,500, excluding commissions. That’s your defined loss on the trade, and the theoretical value. If you’d like a less expensive play, consider June gold 1150 calls, at $1,000 with theoretical value at $1,030. That’s your defined risk on the trade. These options expire May 27, so you’d want to see gold trading above $1,050 at expiration to be successful.
Support for April gold futures comes in around $979 - $969, with further support at $960. The 13-day moving average comes in around $951. The market is well above its 50-day moving average at $922, so I see this market as still in an intermediate and longer-term bullish trend from a technical standpoint. This is one strategy to get in on a bullish trend, without taking on too much risk if the market does see a sizable correction.
Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
*No representation is being made regarding the actual or hypothetical performance of the systems at any other brokerage firm or prior to the dates reflected above. These numbers include commissions, but not fees. Contrary to most published results, please note that these monthly returns are calculated based on closed trade profit/loss and do not include changes in open trade equity. Futures trading involves the substantial risk of loss and may not be suitable for all investors. Past performance is not necessarily indicative of future results. All information, including performance and program description, has not been reviewed or verified by Lind-Waldock.
