Gold prices traded slightly higher in afternoon trading despite finishing the day session lower by $2.40 to settle 1253.1 basis June futures. The FOMC minutes were released after the close and revealed no major hawkish surprises.
Despite some chatter in the market about the Fed not raising rates in June, market participants seem passive as there is an assumption of a matter of when not if concerning any further tightening measures this year. While geo-political fears in Washington and on the Korean peninsula have subsided this week, traders may not want to be short heading into a three day holiday weekend.
It is also important to remember that it is June gold options expiration on Thursday May 25th. FOMC voting members in their minutes agreed that the Fed should begin to unwind their large balance sheet by capping securities purchases and reinvestments. While gold is currently trading $7.20 from the low of the day as of this post following the minutes release may reveal hints that investors view the Fed’s actions as inflationary. Those looking for volatility may consider the following options trade. Using week 1 weekly options that expire on June 2nd, consider the following option strangle trade.
Buy the June week 1 1280 call and at the same time the June gold 1240 put for 4 points or $400.00. The risk on this option strangle is the price paid plus all commissions and fees. The gold market has paused at this 1250 level-1260 level. I believe either two scenarios into next week, either we rally to 1287 on continued safe haven buying , or we challenge significant support levels at 1243 and then 1230 next week into and through the non-farm payroll next Friday.