February Gold Settles 1230.8 Down $7.70
New York (Feb 21) Gold prices finished the session higher Friday, but for the week the yellow metal posted its first weekly loss in a month. Friday’s sessions saw a pull back in prices to begin the session but were later buoyed by a report from the Wall St. Journal that noted the Peoples Bank of China injected 1.53 billion in short term loans to banks. Bullion prices have responded in kind this year as Central Banks in both Europe and Asia have been injecting cash to jumpstart sluggish economies. Gold was on the defensive to start the week as prices moved over $67.00 from last week’s high to this week’s low. In my view seasonal tendencies in the metals contributed to the sell-off followed by profit taking in an overbought technical condition amid a rally this week in stock prices. Also near term bearish was a Goldman short recommendation mid week and some longs covering positions ahead of the Fed minutes release on Wednesday. Bullish news however still dominates the market near term as inflows into gold backed ETF’s have already risen this year by more than they fell all of last year. Prices remain up 16 percent for the year so far this year with turmoil in global bourses fueling interest in gold as the likelihood for consecutive rate hikes decreases.
It is my belief that gold’s fortunes near and long term will be central bank driven. While this belief should be no surprise to anyone paying attention, the hyper sensitive reaction bullion has had to Central Bank interventions or announcements have been extreme the last four weeks. Remember this wasn’t the case the last few years as the stock market was the biggest beneficiary of global central bank stimulus measures. With the possibility of future rate hikes down the road and later a U.S. Presidential election, I look for the volatility to continue this year. Those looking to position trade the gold market; I would advise that option strangles be the course of action near term. I therefore propose the following options package in June gold. For upside exposure, I would look at buying the June gold 1300 call while selling 2 June 1370 calls, and for downside exposure, I would look at buying the June gold 1160 put while selling 2 June gold 1100 puts. The purchase price for the options package should in my view is no more than 4 points, which in cash value would cost $400.00 plus all commissions and fees.