Gold’s $17.10 rally Friday wasn’t enough for a weekly finish higher for the yellow metal. Simply put, gold’s daily direction each day this week was inverse of the stock market and for the most part the U.S. dollar. However, despite massive losses in global equities most notably from Chinese and U.S. bourses, gold’s inability to surpass last week’s highs or to at least trade back over the 1100.0 level, were negated. Bullion hit a two-month high of $1,112 last week as volatility in Chinese stocks raised concerns about the state of the global economy, leaving investors looking for a refuge in gold and other safe havens.
Gold today was also boosted by a weaker dollar, which fell 0.5 percent against a basket of leading currencies, extending losses after weaker-than-expected U.S. data and making gold cheaper for foreign currency holders. U.S. retail sales and industrial production fell in December, the latest indication that economic growth braked sharply in the fourth quarter. Oil prices dove to a 12 year low at $29.13 a barrel, dragging major equity indices around the world sharply lower, as fears of a global slowdown amid a crude supply glut again roiled markets. The world's largest gold-backed exchange-traded fund, the SPDR Gold Shares (N:GLD) shares reported steady holdings on Thursday, keeping its total inflow for the year at 11.7 tonnes.
In my view, gold’s fortunes near term are tied inversely to the direction of the stock market and the dollar. Despite seeing brief periods of safe haven buying amid the worst stock market performance ever to begin a calendar year, gold is only up $30.00 so far. Sometimes we see delayed reactions in commodities, but I believe the deflationary environment that has emanated from the energy sector, has given some pause for a continuous gold/silver rally. Those looking for some upside and downside exposure in the gold market may consider the following trades. For the upside look at buying the June gold 1200 call while selling 2 June gold 1300 calls for 3 points or $300 cash value plus commissions and fees. For downside exposure, I would consider buying the June gold 1000 put while selling 2 June gold 940 puts for $1.70, or in cash value $170.00 plus commissions and fees.
