On Friday, the Labor Department reported non-farm payrolls declined 80,000, more than expected, and the unemployment rate rose to 5.1 percent, the highest level since September 2005. Worries about the economy sent the U.S. dollar back down. It had been gaining some ground after the mid-March Federal Reserve policy meeting. Fed Chairman Ben Bernanke warned last week we may be slipping into a recession.
June COMEX gold futures were up more than $9 in early trade, last trading near $922.
I think it’s time to build a bullish gold position, and in the next several months, gold should maintain its bullish trend and move higher. I recommend buying the December gold $1,000 call, while selling the December $1,050 call to play the range using options. These contracts expire November 20 and this strategy would cost about $1,200, excluding your commission charges. In my opinion, this strategy has a good risk-to- reward ratio with our next target of $1,000 in gold not that far off. Beyond that, resistance should come in near the recent highs in the June contract, near $1,038. Key support would be $875
The dollar has been trading inversely to gold, so the dollar’s action is going to be critical to watch. The Federal Reserve has lowered its key short-term interest rate (the Fed funds rate) six times since September in attempt to salvage the weak economy and skirt a recession. Fed funds rate has dropped to 2.25 percent. The rate cuts have sunk the dollar, and as many commodities are priced in dollars, that has helped drive the commodity bull run.
For more details on trading strategies to meet your particular needs in these or other markets, please feel free to contact me, and ask about our special 50 percent off commission offer for new clients.
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.
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