Buy Alert: November 26, 2013
Buy Alert: November 26, 2013
Option Strategy:
Buy iShares Gold Trust (IAU) January 2014 $12 Puts for $0.40 or better.
Commodity Outlook: Gold
It’s tough times for precious metals bulls right now…
Not only is Fed Chairman Ben Bernanke saying tapering will arrive in “coming months”, but inflation levels are still remarkably low at an annualized rate of just over 1%.
With the Fed still pumping $85 billion a month into the US economy, it’s shocking to see inflation levels so low. In fact, the US and other major economies are teetering on the border of deflation.
As a result, the fundamental reason to own gold (inflation protection) is basically non-existent right now.
That’s why it’s highly likely the yellow metal tests the yearly low at $1,200 in the near future.
To capitalize on lower gold prices, let’s buy Puts in the iShares Gold Trust (IAU). If the price of the yellow metal keeps dropping, so will IAU.
Here are the important details you’ll need for this trade…
Trade Metrics:
| Underlying ETF Symbol: | IAU |
| Call or Put: | PUT |
| Expiration Month, Day, Year: | January 17, 2014 |
| Strike Price: | $12.00 |
| Current Bid/Ask Price: | $0.25/$0.35 |
| Maximum Buy Up To Price: | $0.40 |
| Maximum Risk Per Contract: | $40.00 |
Here’s a breakdown of the important technical support and resistance zones in Gold…
Exit Strategy:
Remember, we want gold to trade lower. Our first profit target is the 52-week low at $1,200 an ounce. If the yellow metal breaks below that important support zone, we could see a quick drop to our second profit target at $1,150 (not shown on chart).
The risk control price is $1,300. If gold trades above that level, conservative investors should consider closing this trade to reduce risk.
Category: Commodity Trading
