Crude Oil, Gold and Euro Strategies

by Richard Ilczyszyn and Phil Streible

After hitting a one-month low this week, gold is currently edging back up amid renewed physical buying interest, and on the heels of gains in ever-resilient crude oil, and the euro currency. We’ll outline some trading strategies for these markets.

For now, every major dip in crude oil has brought renewed buying interest. July crude oil futures are rebounding after a two-day decline, last up more than $3 a barrel, trading above $134. All eyes seem to be on crude oil, which has been leading other markets. Crude oil futures are a tough play right now, but we recommend buying dips until the market reverses off the high. If the market starts to get weak below the 50-day moving average, then we’ll be looking at more bearish strategies.

If crude oil sells off, gold will be vulnerable. But given it remains in a bullish trend, we also recommend using dips in gold to sell puts below the market, to get long gold around $820 an ounce. For example, you would sell the October 820 puts and would collect about $2,000 premium.

The key to this strategy is not to get overleveraged, because selling options involves unlimited risk. Be fully margined. We recommend working with a professional to tailor this strategy as market conditions change.

The U.S. dollar, whose decline has helped fuel the commodity boom, made some upward strides recently, but has headed back down against the euro. Last week, European Central Bank President Jean-Claude Trichet signaled the bank may raise its benchmark lending rate by a quarter-point to 4.25 percent in July, to keep mounting inflation in check in the eurozone. Meanwhile, the U.S. Federal Reserve is expected to keep interest rates steady when it meets on June 24-25. We think the euro had gotten oversold this month, and is due for a more extended bounce. The euro futures have been cycling up to $1.58 and down to about $1.54.

We recommend buying the July 155 call for about 120 points, which represents a cost of $1,500, not including your commissions. That’s your defined risk on the trade. You can also consider a bull call spread. We think Trichet will ultimately follow through with the game plan he’s outlined, and the differential between U.S. and Euro rates will grow. In the big picture, the dollar is still in a downtrend.

Feel free to call us to discuss these ideas further, or for ideas in other markets. Ask about our special half-off offer for new clients.

Richard Ilczyszyn is a Senior Market Strategist with Lind Plus. He can be reached at 800-605-0095 or via email at rilczyszyn@lind-waldock.com. Phil 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.

Futures trading involves the substantial risk of loss and may not be suitable for all investors.