In just over four months, prices of gold have lost their luster trading lower by $250/ounce H/L. It is my opinion that the easy money has been made on any bearish trades and this is just a correction on a longer term bull trend. For a move to be sustainable it is healthy to see washouts?and that is exactly how I define the recent leg lower. This move should create a compelling argument why owners of physical gold or substantial holdings in gold ETFs and stocks should not fall asleep at the wheel and should incorporate a hedging strategy if they anticipate any sizable downside. This leg represents a near 15% correction. Let?s discuss how taking 5-10% of your overall position in metals can be used in futures and options to hedge downside?view it as insurance. In a perfect world you make money on the hedge and then buy more metal at lower prices with the proceeds?of course we do not live in a perfect world but this would be the idea.
The same support levels that held last summer just under last week?s lows have acted as support thus far. I have advised clients to start scaling into bullish trade in June, August and December contracts depending on their risk tolerances and other allocations in their commodity portfolio.
I am anticipating a quick move back to $1640/1650 in the coming weeks and then will re-evaluate on the shorter term positions if that was good enough for a trade or if we should continue to build a position and stay the course?stay tuned. My favored play for swing trades is to gain long exposure via futures and sell out of the money calls 1:1.