MTP Trade #11 2019

Gold Call Spread:

We at Minter are gold fans, and we see the market currently trading in the $1275 to $1365 range for now.

What could drive gold out of the range in the weeks ahead.

  1. A weaker USD
  2. Equity market selloff and higher volatility
  3. Market perception that central banks will pump liquidity and lower rates to help growth.
  4. Investors start to see signs of higher inflation or even increased inflation expectations.

While we believe that gold is a good long term investment and should be a part of every investors portfolio, we at Minter think the range of $1275 to $1365 will hold for the next few months while the Fed and other central banks are on hold.

To take advantage of a higher gold price into the summer, we suggest an option strategy that will benefit if our view above is correct.

Trade

Buy XAUUSD $1330 Call option  Cost $13.00 per ounce  2 months maturity  (indicative pricing!)

Sell XAUUSD $1360 Call option.  Income $5.50 per ounce  2 months maturity (indicative pricing!)

Net cost $7.50 per ounce (indicative pricing!)

Possible outcomes at maturity in 2 months:

If gold is trading under $1330, client loses $7.50 per ounce.  Between $1330 and $1337.50 on maturity, the result is a small loss.

If gold is trading over $1360, client makes $22.50 per ounce.  Between $1337.50 and $1360 the client profits dollar for dollar.

Breakeven on the trade is at $1337.50

We see this as an interesting 3 to 1 risk reward.

Advantages of trade:

Client knows maximum loss ($7.50)  and the trade has a 3 to 1 profit loss profile.

Disadvantages of trade:

If the market trades above $1360 at maturity, the investor will not participate in higher prices as the upside is capped.

Gold Call Spread

Contact us if you are interested in receiving real time trading signals. 
Check out our track record: http://www.mintermarkets.com/position-tracker/

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