Gold has pulled back substantially yesterday on Chinese sales
For Chinese investors gold seem to have been losing its luster and the price action confirms that there is a risk for reversal in the trend that we have observed for the past couple of weeks. However until we manage to close above 1240 we remain bullish on the yellow metal.
Our forecast for today's price action is that Gold will close higher today than current levels around 1241. We are therefore buying daily calls with attention on price action. Should we see a sustained hourly close below yesterdays lows we will counterbalance our trade with a put option.
Let's have a look at the charts - during the past couple of days prices have dropped substantially from the highs observed around 1259.90. Yesterday's lows were marked at just below 1236 and currently we are seeing the pair trying to breakout above the rebound highs set in New York last night.
Fundamental reasons for recent run up in Gold prices are that there are increased inflation expectations for the most part of the developed world and the very easy monetary policy by leading central banks will not be removed any time soon.
The biggest beneficiary from this trade should be the precious metal as it is considered to be a hedge against inflation and a store of value. There is no end to the potential for an upside move.
Our view is that we will eventually close the year at least around 1600. However it will be a long road before we get there. Generally we would be buying weekly calls on any 20-30 dollar drop in prices. We just had one yesterday so we are taking the chance.
The biggest risk to the downside is if the pair breaks below yesterday's and last week's lows at 1235.80 and 1234.20. For now we feel safe to buy daily calls at current levels. Stay tuned for more action!