Gold and silver held steady following no surprises in the French Presidential election. June gold futures settled at 1227.1, up .20 cents on the day. While the dollar received a bounce higher and equities held steady for the most part, last week’s slide in prices didn’t result in any new selling to begin the week. It maybe the calm before the storm that both gold and silver don’t see further liquidation and continued back and fill on the charts. Non commercial and Non reportable funds showed a long position for silver at 88K contracts a decrease of over 21K contracts as of May 2nd.
For gold, the long position were pared by over 8K contracts. The long positions for both are probably over stated in my view as gold is off $25 from the May 2nd settle while silver is off .62 cents. Traders who had priced in a dovish Fed and a weak jobs number were disappointed last week hoping for higher prices. The election over the weekend offered nothing for the bulls either.
The market therefore goes back to watching equities, the dollar, and geo-political news for price direction. There hasn’t been anything major to report on any bullish demand news from Asia, and with gold down already 5 percent from the yearly highs, I look for some more back and fill on the charts before we bounce higher on short covering. Look for silver to challenge 15.89 an ounce while June gold probing down to 1211.0. Of course this premise is based on nothing else entering into the market.
Regarding the administration in Washington, it appears as if gold traders sit and wait for the next crisis or worry that shifts market psychology into safer have assets like gold and silver. In my opinion it’s just a matter of when. With this break in futures prices, the opportunity to sell near term puts to buy long term call strategies has become more appealing in my view for those looking at bullish strategies.
Trade idea: this strategy is very risky but the reward if the timing is correct would mean a successful trade.
Sell 1 July 17 Silver 15.50 put for 20 cents, for a $1,000.00 credit
Buy the Dec 17 18.00-19.00 call spread for 18 cents or $900.00 debit
One would be collecting $100.00 per spread here minus all commissions and fees. July silver needs to hold 15.90 to the downside, if not exit the spread. As long as the short put settles out of the money at option expiration in late June, the trader is left with a debit call spread here to see if silver futures make a push higher ahead of option expirary in late November.