Gold Dip May Offer Good Buying Opportunity
After reaching record highs above $1,000 an ounce in March, gold has stalled, and has now broken below $900 in the June futures contract. I think this correction offers an opportunity to consider a bullish trade.
The market is focusing on the Federal Reserve meeting, which concludes April 30, as well as the stock market's improving prospects. Market participants are expecting the Fed to cut short-term interest rates one more time, but then should take a pause in its easing cycle to focus on inflation. CBOT Fed funds futures are pricing in odds of near 80 percent for a 25 basis point rate-cut in April. If the Fed's tone is that they will continue cutting rates, we may see renewed weakness in the U.S. dollar and a fresh start to the commodity bull market.
I think gold is getting a bit oversold, and with a rebound in crude oil, gold should rally because of the threat of inflation. I see support in June gold at $876. The contract closed just above there Tuesday, April 29. These lower levels in gold might be a good spot to consider a call spread, and I recommend buying the $900/$920 call spread in June, which have a current cost of $450, not including commissions. The market should bounce back into the $920 range once the dust settles from the Fed meeting.
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Phillip Streible is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
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