Gold's retreat from last week’s highs comes on two fronts. First, longs are paring back positions ahead of the FOMC next week.
Non commercial and non reportable positions increased their long positions in the market up to 352,536 contracts and increase of over 34K contracts following the disappointing non-farm payroll report last week.
However longs began taking profits late last week and the pressure to the downside has continued to begin this week. It’s important to note that many longs have the profit and therefore the risk heading into an uncertain FOMC.
Second, outside markets, most notably the indices have been under duress in the last few sessions suffering major losses. The retreat in the bond market has been noted as well, while the dollar has regained a slight bid from the early September lows.
Normally in these type of conditions the gold market would experience more of a risk off bounce, but that hasn’t been the case as long liquidation remains the theme. I expect more of the same into the FOMC next week; the market is absent of any major economic release.
Heading into the two day FOMC report next week I would consider the following strangle as a strategy into the report. For upside exposure look at buying the October 1350-1380 calls spread. For downside exposure consider buying the October 1280 put and selling the December 1250 put.
You can package both vertical option spreads for 5 points, which in cash value costs $500.00 plus all commissions and fees. October options expire on September 27th, leaving this a report day volatility play.