Gold Prices (GLD) Trading On Edge Of Risk On/Off

Despite the Fed meeting, surprise OPEC production cut and presidential election uncertainty over the past two weeks, the financial markets have been remarkably range bound. Last week saw long-term US Treasuries move higher along side stocks. While traders typically oscillate from “risk-on” to “risk-off” and move asset classes with them, we’ve seen a market with lots of churn but not much progress. However, one market that is seeing some movement is the Gold market.  Today we’ll look at gold prices via the Gold ETF (NYSEARCA:GLD).

GLD has been on the move recently. Last week, it shed 1.7% while moving down to the critical 125 support level. And this makes the asset of key interest to traders (as both a trading vehicle and a market indicator).

It is worth noting that the 125 level marked the high in January 2015. That level was not reached again until June of 2016 (a full 18 months later). A convincing drop below 125 and past the 124 high of April opens the door for further movement to the downside. The next price support level for the Gold ETF (GLD) is the late June low of 120. That’s also the site of a massive gap up to 124.50 level. The May 116 level would be another one to watch if the round number support level of 120 is breached.

Gold ETF (GLD) – Weekly Bar Chart


Whether GLD develops a downward trend or continues to bounce in the 125 to 130 box remains to be seen. With the clean trend line dating from the lows in late December 2015 now broken, a move to the downside seems more probable than an immediate move beyond the 130 level, however.

Gold ETF (GLD) – Daily Bar Chart


If you’re unsure about the direction of gold prices but are eager to participate, the GLD options market may offer a cost effective solution. Implied volatility levels for GLD options are sitting at 52 week lows, making it cheap to buy GLD options. A long strangle or straddle in the November expiration cycle would allow for plenty of time to see if GLD can pick a direction. And once it begins to move, look for implied volatilities (and the value of one of your long options) to climb dramatically.

Thanks for reading.


Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.


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