There are certainly a great deal of bullish signs for a potential push for gold to move quickly from its current price of $1,375 to break through the $1,500 mark in September – such as:
- bullish technical indicators,
- important macro developments,
- increased demand from China and India, and
- a potential non-tapering announcement from the Federal Reserve
…and a SPDR Gold Trust ETF (GLD) call options play is a cheap and profitable way to benefit from this upward movement without having to physically own gold.
Click to EnlargeStrong Bullish Technical Indicator
Based on the strong technical indicators evident in the chart, it certainly appears that GLD is in a definite upward trend.
The red and blue lines in the middle of the chart — collectively showing the moving average convergence/divergence indicator (MACD) — display momentum. As can be seen, the blue line has crossed above the red line, a reliable signal that gold will head even higher from here.
Gold demand continues to outstrip gold supply, and this trend isn’t likely to change any time soon.
Both China and India, which lead the world in gold buying, have shown no signs of letting up — and in fact have been ramping up their buying this year. And according to a recent Reuters article, gold demand in China and India could reach a record 1,000 tons each in 2013. China is also on pace to pass India as the world’s largest buyer of gold.
Also, according to the World Gold Council, consumer buying of physical gold in the second quarter increased by 53% compared to the same period last year.
There is also a strong seasonal tendency that gold exhibits from late August into October, where the precious metal tends to perform well, as the festival-buying season in South Asia commences.
“…..about 50 percent of India’s gold demand can be attributed to weddings, which means more than 400 tonnes of gold is exchanged at weddings in India each year, making it the single largest component of the Indian wedding market…..”
Fed Tapering Influence
There are definitely a lot of traders feeling the pressure and are concerned as to the impact The Fed tapering program will have on the stock market direction.
The Fed will hold a critical FOMC meeting on September 17-18. Some expect they will announce the beginning of tapering of their monthly QE program. However, this is unlikely given the current state of the economy — the recent rise of interest rate is a preview of what will occur if this happens!
And despite talk of the Federal Reserve tapering its quantitative easing program, central banks around the world are still printing money like there’s no tomorrow — which is an inflationary habit that is always positive for gold prices.
Even the debate over tapering is enough to send shock waves through the economy with the potential for many traders to be extremely cautious, which will lead many back to more secure instruments — GOLD.
Also, if stocks begin to fall, bullishness for commodities will be apparent, and this upward pressure will likely be stronger than the calming pressure of less stimulus.
Click to EnlargeRecommendation
After the latest move up of gold, even the staunchest of bears will find it hard to ignore the momentum.
Many of these investors will now jump on the bandwagon which will add support to the gold rally, and will help push gold past the $1,400, and onto $1,500, and the bull market will be in full swing again!
Therefore, to this end, investments in GLD, the largest gold ETF. It looks attractive because the ETF will give you exposure to the yellow metal, without some of the vagaries of the futures markets – and is already under-going a stair-stepping process to profit.
Therefore, based on the facts above the following options trade is recommended:
Options Trade: Buy the GLD Jan 2014 140.000 call (GLD140118C00140000). Place a protective stop limit at $1.40 and a pre-determined sell at $5.50.
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