Is The Low In For The Gold Price?

October 24, 2018

London (Oct 24)  Everybody loves gold. Up, down, stagnant, even if you don't like owning a ton of it, you still like it. And the talk of late has centered around the recent price of gold. Is it finally a buy? As option sellers, you fortunately do not have to answer that question.

However, if you saw the interview on July 31, I told TD Ameritrade's Ben Lichtenstein that we felt gold was close to making a low. Not 14 days later, the market appears to have done just that.

The question now is, will that low hold? More importantly, is there a cash opportunity to sell puts in this market now? Our opinion is yes, there is. Let's take a look.

The Past 6 Months

Gold prices have suffered since April when investors began dumping gold in the face of rising interest rates and a more "risk on" attitude toward markets. Rising rates make gold a less appealing alternative to investors as it offers no yield.

US Dollar 

US Dollar: Flying high but running out of steam?

The rising rate environment also spurred on the US dollar. International investors seeking safe haven flocked to the US dollar instead of gold. From February 2018-October 2018, the US dollar index climbed by 9.4% while gold futures fell by 12%.

So what has changed now?

Changing Landscape In Gold Market

We believe the landscape is now shifting in Gold for 3 Main reasons:

1. Increasing expectations for a more dovish Fed in 2019: Whether it be bowing to pressure from the current administration or a fear of slowing the economy, the Fed is expected to ease up next year. Why the caution? It could be fears over the growing trade war with China. Or, it could be concern about Europe where growth is expected to slow to 1.9% next year and 1.7% in 2020 .* Europe is a top American export market and now becomes another worry for US exporters. Both global and US growth are also expected to slow next year. (*Source: Kiplinger's)

…gold appears to be regaining its status as a safe haven.

2. Volatility in US Stocks: October has historically tended to be a rough month for stocks. 2018 has lived up to that reputation so far. Even before today's sell-off, the S&P 500 was down 4% in October. With such unsettling swings, and enthusiasm waning for the dollar, gold appears to be regaining its status as a safe haven. New York gold futures are up nearly 3% so far in October - almost certainly as a result of US Stock Market fears and safe haven buying. Investors have poured $278 million into the VanEck gold miners ETF (NYSEARCA:GDX) in October while EPFR - tracked gold funds climbed to an 11 week high last week.* (*Source: The Wall Street Journal)

Stock Trading Floor Investor 

Stock Market mayhem has brought gold back into vogue.

3. Uncertainty over the Midterm Elections: Elections are always a point of uncertainty but this year is different. With a polarized electorate, both sides view the 2018 midterms as a watershed moment with cataclysmic consequences for a loss. With such dramatic viewpoints, do not discount the election's potential to spur gold buying ("it's the end of the world!") from conservatives or progressives, before or after the election.


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