By: Andrew Keene
Gold slid to near two week lows during this morning’s trading session. Uncertainty over Spain’s potential bailout and the sustainability of the Fed’s QE program is causing traders to take profits off the table, driving gold prices lower. Gold futures are trading down 24.40 (-1.30%) to two week lows of 1735.30.
With the post Bernanke announcement rally in gold failing to keep momentum investors are taking the opportunity to take profits. Gold has seen a rally since Fed Chairman Ben Bernanke announced an open ended quantitative easing program that would buy $40 billion worth of assets every month. The length of the program was to be dependent on improvements in economic data. Recent better than expected consumer sentiment reports and jobless claims numbers lead investors to believe that the Fed easing program might not have the lifespan that was expected.
Despite today’s sell off gold continues to remain attractive for many investors. Since the Fed announcement of more quantitative easing gold is up over 12%, and today’s sell off is most likely driven by speculators taking profits. Keep in mind that should the economy improve inflation will likely rise, and should the economy worsen the Fed will continue to print money to fund its bond-buying program. Both scenarios are bullish for the price of gold. With major bullion ETF’s increasing their physical gold holdings, the long term story for gold still looks positive.
My Trade:
Trade: Buying the GLD Nov 73-75 Call Spread for $0.40
Risk: $40 per 1 lot
Reward: $160 per 1 lot
Breakeven: $174.40
Notes: GLD is the SPDR Gold Trust ETF. This ETF tracks the price of gold very well because they hold large amounts of physical gold.