Buy Alert: January 7, 2016
Buy Alert: January 7, 2016
Option Strategy:
Buy SPDR Gold Trust $GLD March 18, 2016 $106.00 calls for $3.20 or better.
Commodity Outlook: Gold
Gold is starting out the New Year on the right foot…
Thanks to a rather stunning meltdown in equities the first week of the year, gold is seeing some hefty safe haven buying. The yellow metal has rallied $45 an ounce (4.29%) since early Monday morning.
What’s going on?
First of all, China is trouble again. Recent economic data suggests the world’s second largest economy is sputtering to even lower levels of growth than seen last year.
What’s more, recent US economic data has come in decidedly weak as well. Case in point, December’s Chicago PMI reading came in at a recessionary 42.9.
That’s deep into contraction territory!
Here’s the deal…
It’s starting to look as though the US Federal Reserve made a big mistake by raising rates in December 2015.
With global economic data showing undeniable weakness over the past few months, the US central bank is likely tightening monetary conditions into an economic slowdown.
That’s bad news for stocks, and great news for gold…
Why?
Given the current conditions, the Fed will likely be forced to reverse course and return to its highly accommodative policies to keep the US from falling into recession in 2016!
If that’s the case, gold is going to skyrocket this year as investors price in the possibility of continuous money pumping by the Fed.
Here’s how we’ll play it…
Resource Trade: SPDR Gold Trust $GLD
As long-time subscribers are aware, $GLD is our go-to asset to trade the gold market. The commodity ETF tracks the price of gold in lockstep. If gold rallies, so does $GLD.
So here’s what we’ll do…
Buy the $GLD March 18, 2016 $106.00 calls for $3.20 or better.
The current bid/ask spread for this contract is $2.97/$3.05.
Do not pay more than $3.20!
Our official entry price for performance tracking is $3.05. Your price may be higher or lower.
Exit Strategy:
Remember, we want $GLD to trade higher. Our first profit target is $110.00 while our second target is at $114.00.
Our risk control line is at $102.50. If $GLD trades below that level, conservative investors should consider closing this trade to preserve capital.
Category: Commodity Trading
