Options Trade – SPDR Gold Trust (GLD)
Friday August 31, 2012

The Breakout In Gold Is Here!

**OPTION TRADE: Buy the GLD Nov 2012 165.000 call (GLD121117C00165000) at or under $3.20, good for the day. Place a protective stop limit at $1.50 and a pre-determined sell at $5.50.

by Ian Harvey

August 31, 2012

Introduction

Back in 2011, gold enjoyed a big rally. As the European debt crisis grew worse, prices shot from $1,550 an ounce to a high of around $1,900. This big rally was followed by a big decline… one that took gold back down to the $1,550 level.

From May through July, gold held steady around the $1,550 level. It then began trading in a tight price range. In this range, gold’s day-to-day volatility fell to its lowest point in over a year.

These periods of tight price ranges and low volatility often precede big price moves…

That “decision-point” arrived the next day…

Wednesday’s comments from the Federal Reserve led the market to think more financial stimulus is on the way. That resulted in a selloff in the dollar and a rally for gold.

The metal shot out of its trading range. Take a look…


Gold had pulled back since that breakout ready for the next catalyst to stimulate movement…..and once again that will come from Bernanke’s announcement Friday.

QE3 and Direction!

If the Fed Chairman hints at QE3 on Friday, gold prices could soar. It may be recalled that gold prices had surged after the Fed announced QE2 in 2010.

While most analysts say that the Fed will implement QE3, the debate has been over the timing. Some analysts think that QE3 is likely to happen soon. Others say that the Fed may wait until next year before it implements another round of bond buying program.

But what makes QE3 so important to bullion investors?

Quantitative easing basically means that the Fed prints money to buy bonds (longer maturities on the previous two occasions). The idea behind quantitative easing is that additional liquidity will boost asset prices. Also, it will debase the dollar, and since gold and dollar have an inverse relationship, the precious metal benefits from quantitative easing.

Since the Fed prints more money, it raises the chances of inflation in the future, and gold has traditionally been seen as a hedge against inflation.

So, it is no surprise that bullion investors are anxious ahead of Bernanke’s speech on Friday.

On Thursday, gold futures for December delivery settled $5.90 lower at $1,657.10 an ounce.

So let’s trade this rally, by using the gold fund SPDR Gold Trust (GLD).

SPDR® Gold Shares (GLD) offer investors an innovative, relatively cost efficient and secure way to access the gold market. Originally listed on the New York Stock Exchange in November of 2004, and traded on NYSE Arca since December 13, 2007, SPDR® Gold Shares is the largest physically backed gold exchange traded fund (ETF) in the world.

SPDR Gold Trust (the Trust) is an investment trust. The Trust holds gold and issues shares (Shares) (in minimum blocks of 100,000 Shares, also referred to as Baskets) in exchange for deposits of gold and distributes gold in connection with redemption of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion. The shares are designed to provide investors with a way to invest in gold. The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust.

Therefore, based on the facts above the following options trade is recommended…..

**OPTION TRADE: Buy the GLD Nov 2012 165.000 call (GLD121117C00165000) at or under $3.20, good for the day. Place a protective stop limit at $1.50 and a pre-determined sell at $5.50.


”Success is simple. Do what's right, the right way, at the right time.”


Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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