Market
Summary
Last week precious metals such
as gold recorded a fourth consecutive weekly loss due to a favorable payroll
report strengthening the U.S. dollar. A stronger dollar tends to pressure
prices for dollar-denominated commodities such as gold since it makes them more
expensive for holders of other currencies to buy. On Monday gold started
rebounding and today gold and other precious metals advanced higher on the
possibility of a Barack Obama victory in today's presidential election. The prospect
of another four years for President Barack Obama is seen as bullish for the
precious metal, said Brien Lundin, editor of Gold Newsletter. “The market
perception is that Obama may pull it out,” Lundin said. Gold futures have been buoyed
by the Federal Reserve’s ultra-easy monetary policy — which is expected to
continue if President Obama is reelected. “The prime driver for gold and silver
has been the prospect for monetary inflation and quantitative easing,” Lundin
said. “So an Obama victory would support [the view] that these policies would
continue unabated.” Slight weakness in the
dollar also buoyed gold prices.
Investor
Analysis
As confirmed in the chart above, gold
hit bottom last week but has staged a strong recovery over the past few days.
The chance of a Mitt Romney presidential election win is viewed as a negative
for gold. Traders appear to expect President Obama to prevail, if they are
correct this should drive gold prices back up to the level prior to the
presidential debates.
Possible Strategy
Above
a daily chart for the SPDR Gold Shares (GLD) exchange traded fund (ETF). GLD is
a popular ETF investment that seeks to replicate the performance, net of
expenses, of the price of gold bullion. Investors interested in participating
in the gold rebound can buy into the actual GLD ETF. Or a more cost effective
option might be to purchase GLD call options. Purchasing the November
expiration GLD $168.00 strike price call option would cost approx. $1.26 per
share (based on yesterday's close), but would generate gains the further gold moved
higher prior to November 17th. For an explanation on the basics of option trading and
description of how trade is set up go to http://www.theoptionplayer.com/strategies/
By Gregory Clay
