Intraday Gold Futures - Aug 2014

Gold Futures Collapse Through Channel

Gold futures collapsed today, breaking through the channel on the bottom side, signaling a major move down.  As we noted in our previous post: Gold Sideways Move Presents Trading Opportunity, Gold has been traveling sideways in a channel bounded on the bottom side by a low of 1268.5 and on the top side by a high of 1315.7.

Today, Gold prices tanked, going as low as 1264.5 for the August 2014 contract at the time of this post.  Normally, when prices break out of a sideways channel, we go long or short with the expectation of prices moving up/down the same ‘distance’ as prices moved sideways.  But we’re not going to chase this market.  Prices moved suddenly and violently today so we want to wait and see if they climb a little first before we enter the market on the short side.  We’ll see if we can catch it before it drops too far down.   Stay tuned!

Intraday Gold Futures - Aug 2014

Weekly Gold Futures

Gold Sideways Move Presents Trading Opportunity

As the Fed prints billions of dollars each month from thin air, gold prices are affected by the rise in capital that flows into the equities market (and away from gold) as the Dow and other indices make record highs.  The game is rigged, and like an exceptionally cruel game of musical chairs, whoever is still in the stock market when the music stops  is going to suffer with the inevitable collapse.

Looking at the Daily Gold chart below, you can see gold futures have been moving sideways for the past month, with the upper end of the channel at 1315.7  back on 5/5/14 and the lower end of the channel at 1268.5 back on 4/24/14.    One of 3 things is going to happen over the next few months:  Prices will continue to move sideways in that channel, or they will break to the top side of the channel, or they will break to the bottom side of the channel.  And there are at least 3 ways to make money in gold futures and gold options.

Daily Gold Futures - Aug 2014

We could put in a buy order (go long) to purchase a gold futures contract if prices go above 1315.7 while simultaneously putting in a sell order (go short)  to sell a gold futures contract if prices drop below 1268.5.  Whichever way prices go, that order will be executed (and we would then cancel the other order) and we then take the long or short position of that executed order.  Gold futures margins are expensive, so another way to straddle the channel is with options.  We could purchase an out-of-the-money Call option now with a strike price above 1315.70 while simultaneously buying a Put option with a strike price below 1268.50.    If prices go up, our Call option becomes valuable.  If prices drop, our Put option becomes valuable.   We would only lose the cost of one of those 2 options.

Another way to profit from this sideways channel is to SELL out-of-the-money put and call options and pocket the premiums (if we expect prices to continue snaking sideways, those options we sell will expire worthless, and we keep the premium paid to us for those options).  The downside to this strategy is if prices move against us, all of those options we sold would then be ‘in-the-money’ and we would be exposed to losses.

A little patience, however, could go a long way.  You can see in the Weekly Gold chart below that a wide 123 bottom has formed since reaching the multiyear low of 1182 (the #1 point in the chart).  If prices break above the #2 point of 1391.4, we could go long Gold Futures with a target of the 50% Retracement Level of 1488.4.

Weekly Gold Futures

If gold futures break to the upside of the sideways channel (above 1315.7) , we have a decision to make whether we want to wait for prices to also break thru the #2 before taking a long position, or to anticipate the ride up and buy a long position at that point.

When prices break out of sideways channels, they tend to travel the same distance up or down as they went sideways.  Looking at the Daily chart, it looks like if prices break to the upside of the channel, they would continue to go up past the #2 point.   The safest play would be to buy a Call option that is ‘out-of-the-money’ from the top of the channel, but ‘in-the-money’ in relation to the #2 point.

Either way, we have to wait and see if prices continue snaking sideways or break to the top or bottom of the channel before we initiate a position.  Stay tuned!

 

 

Taking Profits in Gold

The April Call option we purchased (1265 strike price) for $2930.00 (see our post:  Going Long Gold on Breakout)  today is worth $6200.

We sold our April Call option and took the $3660 in profit.  Yes, prices could have gone up to 1488 or higher (see the 50% Retracement level according to the Weekly Gold chart in our post linked above), but whenever we can make triple-digit ROI gains in just a few weeks, we like to pocket the profits early while there is still time value left on our option.  Prices already surpassed the 50% Retracement level on the Daily Gold chart of ~1272 anyway.  We can always re-enter the Gold market at a later date.

 

Going Long Gold on Breakout

Gold Futures made a new 12-month low back on 12/31/13 at $1181.40 and proceeded to form a 1-2-3 bottom over the next several days (see Daily Gold chart below).  This past Friday (1/10/14) Gold broke above the #2 point of 1247.7.  We bought an April 2014 Gold Call option at a strike price of 1265 for $2,930.00 (3 strike prices out of the money).   This option expires on March 21.

On the Daily Chart, the 50% Retracement is $1271.85, but on the Weekly Chart, the 50% Retracement is $1488.40.

Daily Gold - Feb 2014Weekly Gold