Gold/Silver: Play your next options

Precious metals came under significant pressure this week as risk aversion weighed on most asset classes. Persistent inflation continues to be confirmed after this week’s CPI and PPI data. We expect gold and silver prices to trade in a defined range for the remainder of the year, with prices set to recover into early 2023. Precious metals are still pricing in a US recession, rising Treasury yields and a firm US dollar. The likely outcome for US stocks is a fall in the S&P to 3500 by the end of the year. Looking ahead to 2023, we expect the rate hike cycle to be complete and precious metals prices to trend higher.

Daily Gold Chart

With prices and ETF holdings seeing significant outflows, one should ask at what point will physical buying return to the markets? Analyzing the long-term chart, gold futures have fallen back to levels not seen since the early stages of the pandemic. Traders should now expect the downside to be limited amid reports that India is slashing its gold import tax, which could spark renewed physical demand. The first area of ​​resistance is the 50 DMA at 1736.9; a break of this level should trigger a short covering rally that could easily stretch back to 1800. To further help you develop a trading plan, I went back 20 years of my trading strategies to create a free new “5 Step Guide to Technical Analysis” on gold, but can easily apply to silver.” The guide notes All the steps of technical analysis are available to you to create an actionable plan to use as a basis for entering and exiting the market.You can request yours here: 5 Step Gold Technical Analysis Guide.

Gold options strategy

This strategy is similar to our silver recommendation published in the last few weeks. Those who participated through our company were strongly encouraged to exit due to the September 12 price increase. Now that gold is supported again, we will look at a similarly calculated risk strategy.

In the past I have found that it is best to use a calculated risk strategy in heavily oversold markets that have not yet reached a technical bottom. A bull call spread for options is a trading strategy that aims to profit from an increase in the price of a particular market or asset during periods of high volatility or for counter-trend trades. The options strategy consists of two call options that form a range that outlines a lower and an upper exercise point. The bullish call spread strategy helps limit your maximum loss if an asset’s price falls. However, the strategy also limits potential profits in the event of a price increase. Bullish investors often use this as the calculated risk debit spread when trading futures.

We use the February 2023 gold futures contract in this bull call spread example. We buy gold 1750 call of February 1st at $45 as a long call. We then simultaneously sell the February 1 Gold 1750 call for $22 as our short call. This action generates our bounty which is $23. We then multiply that by $100 to account for gold’s multiplier (gold is a 100 ounce contract) to get $2,300 or our total premium paid (plus any commissions or clearing fees).

Knowing our paid premium, we can calculate our potential maximum profit simply by taking the difference in our strike prices ($1850 – $1750), which in this case is $100, and then multiplying $100 by $100, since this is is a futures contract. This gives us a total of $10,000 as our maximum gross profit, minus our $2,300 premium, leaving us a maximum net profit of $7,700 (minus any commissions or clearing fees). If you’ve never traded futures or commodities, I’ve just completed a new training guide that will answer all your questions about transferring your current investing skills to trading “real assets” like the 10 ounce gold futures contract. You can request your book here: Trade Metals, Transition your Experience Book.