*RISK DISCLOSURE: FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS, AND IS NOT SUITABLE FOR ALL INVESTORS. ONLY RISK CAPITAL SHOULD BE USED. MARGINS ARE SUBJECT TO CHANGE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. AN INVESTOR COULD POTENTIALLY LOSE MORE THAN ORIGINALLY INVESTED.*
Let's take a look at Gold and the fundamentals. Typically investors buy Gold as a hedge against inflation. A few things to consider...
-US CURRENCY/ECONOMY
Bernanke's comments yesterday were firm that the Fed has interest in strengthening the US Dollar. With this idea in mind, it has been interpreted by the street that our next FOMC meeting on June 25th will be a PAUSE in keeping the Fed Funds Rate at 2.0% and that possibly later this year we will begin raising interest rates. This would suggest that investors could start buying the greenback in anticipation of a higher rate of return. Many feel that a bottom has been posted in the Dollar, and that 73 could become a strong support level for buyers.
-An ADP employment report released Wednesday said US private sector companies added 40,000 jobs in May. Many analysts see this report as giving insight into Friday's non-farm payrolls report. Last month's April report marked the first time this year that non-farm payrolls beat expectations coming in with a -20,000 vs. the consensus of -75,000. We also posted a 5.0% unemployment rate vs. the consensus of 5.2%. Looking ahead to Friday's non-farm payroll report the consensus is for a -60,000 and an Unemployment rate of 5.1%. In my opinion we'll see a better than expected report Friday morning that will boost stocks and the Dollar higher. We may also see yields on the 10-year note climb back around the 4.10% area and see a selloff in Treasury prices. Ultimately another reason to see Gold futures, Gold stocks, and commodities retreat... which may have already begun.
-CRUDE PULLBACK
Today crude pulled back to the lowest levels seen in a month to $122/barrell. Oil bulls want to see if the crucial $120/barrell level holds. Will this dip become another great buying opportunity is yet to be known. If we see a falloff in demand from higher energy costs as indicated by today's Energy Report, crude may have a significant pullback and bring GOLD along for the ride.
I like buying the August Gold 780puts for $250.00 or better. Current August Gold futures are at $880.7/oz.
This is a limited risk option position that gives you 53 days to see the show, expiring 07/28/08. This will incorporate Friday's non-farm payrolls report as well as our next FOMC meeting on June 24-25 where a pause is expected. If you take a look back to our first meeting of the year on January 30th, Gold retreated $50/oz. within a week's time with a rate cut. Look back again to our next Fed decision on March 18th, Gold sells off $100/oz. within a week's time after another cut. Between Fed decisions Gold technically could not hold above the 960/oz. level. In my opinion this was a key level for technical traders and Gold bugs who were long the market to keep open positions. With the consensus for no cut on April 30th, the market lost bullish sentiment and made new lows on the year to 850.5 on May 2nd. Of course Gold found support at new lows on the year, but could never make it back to test the 960 key technical resistance level, failing at 940/oz. If Gold breaks 850/oz we'll probably see many longs exiting the market and a big washout in prices. I think this trade gives you a great opportunity for profit at a valued limited risk price.
I may be reached at 888-325-9300 to discuss options trading strategies.
Michael Maniatis -Lasalle Futures Group
NOTE: FOMC and non-farm payroll consensus information courtesy of http://www.bloomberg.com/ *chart courtesy of http://www.barchart.com/*
THE PRECEDING RECOMMENDATION CAN NOT BE GUARANTEED FOR A PROFIT, AND AS ALWAYS TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK AND IS NOT SUITABLE FOR ALL INVESTORS OR TRADERS.
