Most of gold’s losses from last week came on the heels of wild gyrations in the stock market last Monday and Tuesday, which, at one point, had the Dow down over 1000 points in trading on Monday before global bourses recovered later in the week. The gold market was also assessing comments on policy normalization from Fed officials attending the Aug. 27-29 Jackson Hole Economic Symposium. Two top Federal Reserve officials who have pressed for interest rate increases said on Friday that a spate of violent swings in financial markets won't knock the U.S. economy off its feet. Many have questioned gold’s safe haven appeal lately, given all the global headwinds, most notably from China, but the fact remains that weak gold prices have failed to spur physical demand in Asia, with premiums in India slipping, and those in China still hooked on volatile equities. Simply put, it will be hard for gold and silver, for that matter, to sustain any rallies without physical buying, particularly from China and India. This brings us back to the Fed. It is my contention that unless something else enters into the market, both gold and silver will remain range bound or trade within a reasonable range until the Fed meets later in September. The first day of September saw the Dow futures drop over 400 points, while the S&P fell over 50 points. These are massive spike down lows that have major U.S. indexes on the defensive and now lower for 2015. Despite the mass migration out of global indices in the last two weeks, gold has been sold into despite showing meager gains for this week up just five dollars as of the September 1st close. Certainly further commentary from Fed officials could tip the balance here ahead of the FOMC policy announcement on the 17th, but until then, I would have positions on both sides of the market.
Those looking to be protected on both sides of the market into the aforementioned Fed meeting and policy announcement may consider the following options strangle to potentially capture a bigger protracted move in the market. I would propose buying the October gold 1180 call and selling 2 Oct gold 1240 calls for upside exposure, while at the same time buying the Oct gold 1080 put and selling 2 Oct gold 1020 puts for 5 points or in cash value $500.00. The risks on the trade are the price paid for the options plus all commissions and fees. The Fed policy announcement is on September 17th, while October gold options go off on September 24th.