FxWirePro: Intricacies of Bullion Markets, Trading and Hedging Recommendations

Federal Reserve of the U.S. came up with interest rate cut for the first time since the 2008 financial crash. As a result, the U.S. markets retorted accordingly, subsequently, all three major indices dropped with a great deal.

While investors marched from equities to 10-year U.S Treasuries to bolt their portfolios. Amid such global instabilities, various asset classes have joined this sentiment, likewise, Gold also surged from its monthly lows of $9,479 to $10k levels.

While not the start of a new Golden Era, advancing end-of-cycle dynamics keep us bullish gold. We now target $1,780/oz.

Gold’s 20% YTD appreciation despite US dollar strength looks eerily reminiscent of the dying days of previous expansions.

Despite the recent rally, we do not yet think a recession is fully discounted in the gold price and we now see gold prices peaking at around $1,780/oz by year-end 2020 and averaging $1,418/oz in 2019 and $1,724/oz in 2020.

At the same time, we do not view the current bullish setup for gold as the onset of another decades-long Golden Era, as was experienced in the first decade of this century.

While some of the same factors that spurred gold’s seven-fold rally from 2001-2011 have once again turned supportive, we believe the current ownership structure doesn't really suggest a massively bullish outlook.

Well, contemplating all the above technical rationale, on trading grounds, at spot reference: $1,536.50 levels, one can think of call options spread with upper strikes of $1,550.27 levels.

Alternatively, on hedging grounds, we advocated long positions in CME gold contracts of September delivery. We now like to uphold the same strategy by rolling over the contracts for September’19 delivery as we could foresee more upside risks amid the global financial crisis. Courtesy: JPM