While stocks continue to soar, gold prices are plummeting.
The selling frenzy in the SPDR Gold Trust (GLD) began in earnest following October’s Fed announcement and it hasn’t let up since. All told, GLD is down 6% since its Oct. 15 peak, giving back the bulk of the gains from its autumn ascent.
The consensus from the Fed’s comments seems to be that a rate hike in their December meeting is back on the table. Perhaps higher rate fears are fueling the GLD liquidation.
What I find interesting about such a narrative, however, is that gold prices haven’t exactly been thriving during the low-interest-rate environment over the past four years. Heck, the GLD ETF has fallen 42% from its 2011 peak.
Perhaps it’s simply the mad dash for equities driving funds from gold, and bonds for that matter, over the past week. Regardless of the reason, GLD is back on the ropes yet again.
From a technical perspective, the weekly downtrend in the GLD ETF has once again denied gold’s bottoming attempts. It’s not a coincidence that the recent rally was stymied at the declining 200-day moving average. This oft-watched long-term average has been the culprit for a number of past uptrend denials.
GLD ETF Chart
If you think GLD has an appointment with its previous lows at $104, here’s a bearish option play that offers handsome rewards. It’s worth pointing out, however, that GLD maybe due for a rebound in the short run — it’s pretty oversold here. But, such a retracement would offer a better entry point for the following trade idea.
Buy the GLD Dec $108/$104 put spread for $1.66 or better. The position consists of buying the Dec 108 put while selling the Dec 104 put. The initial $1.66 debit represents the max risk and will be lost if the GLD ETF sits above $108 at expiration.
The potential reward is limited to the distance between strikes minus the net debit, or $2.34, and will be captured if GLD sits below $104 at expiration.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
