Friday’s close was very interesting with the Gold Spot (FOREX:XAUUSDO) closing at 1232.555 -13.655 (-1.11%). For technicians, currently in the short term, gold support is strong at 1208 (28/03/2016) but the failure this week to break through the resistance at 1284 (11/03/2016 high) is largely foreboding. A short term bear market is emerging with traders eying the next support at 1182 (08/02/2016 low) which if broken will pile up even more pressure that may lead to a complete rout. The long-term technical structure for an upside momentum is becoming weaker and traders expect a huge battle to unfold eventually to the downside at the 1045 (05/02/2010 low).
With GBX gold futures July 16 positions command 4388/3250 USD initial/ maintenance margin and that can be a daunting outlay for traders.Futures put options on the July 16 contract at a 1270 strike (Gold (GCN16) 1270 Put (PGCN161270) ) command a premium 58.6 as of last friday, yesterday, and that would require a deposit of +$5,860.00 with about 90 days to expiry.
There is another way to trade gold effectively for a smaller outlay by picking on a selection of choice gold equity. Please turn to the stock symbol NEM on NYSE which is Newmont Mining Corporation, based in Greenwood Village, Colorado, USA, is one of the world’s largest producers of gold, with active mines in Nevada, Indonesia, Australia, New Zealand, Ghana and Peru. Now compare the stock chart for NEM and notice the almost parallel movement in stock price to the gold spot chart.
The CBOE run a neat virtual trade platform which is basically the same as the Charles Schwab Options Express platform. sign up at - http://www.cboe.com/tradtool/virtual-online.aspx Now find the stock NEM and click on options chains and pull up the put options for Sept 16. always remember that if you are going to buying options there’s 2 cardinal rules that you must keep 1. buy options that are 1 or 2 strike in the money and 2. buy options that are at least 60 days to expiry to prevent rapid time decay and allow yourself room to trade effectively. now, going to NEM puts look at the strikes 30 - 34 and your computations on the platform should reflect premium currently from 3.50 to about in excess of 4.00 for deeper in the money options. so that translates to costs of about $380 to about $450 on the strike 30 which is about $400 all inclusive of commission for a put option strike 30 Sept 16. Now compare that to a short future of gold at 1270 and we are talking about a huge cost saving to virtually mirror the gold spot price via some of the mining stocks.
Looking over the NEM stock should gold sink to the 1180 region your NEM put should start gaining profit very quickly.
Given that gold producers are facing rising cost of production and debt and reduced earnings and stagnant industrial and commercial demand, the justification for a topside breakout over the 1280 is rapidly waning and the recent head and shoulders on the gold chart point to a rapid deterioration in price. the probability of another run up to the 1280 would require some extra-ordinary fundamental news and a rapid erosion of the USDX below the 94 mark, where it has recently bounced 5 times with incredible support to close yesterday Friday 22 April at over the 95 mark…
Happy Trading from Trader X16
