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Gold Still Shines Following its Sixth Consecutive Quarter of Gains

Gold Still Shines Following its Sixth Consecutive Quarter of Gains

As the first quarter wrapped up, gold saw a sharp decline of 2% as it broke a level of support near midpoint of its rally on March 24. That sort of weakness is confusing with all of the news going around of the lack of availability of physical gold and the premium that its trading relative to gold futures prices.

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  • Despite the weak end of quarter, gold posted a monthly and quarterly gain. The quarterly gain marked the sixth consecutive for gold. The difficulty of obtaining physical gold is due in part to fact that gold refineries are being closed due to the COVID-19 threat. This hits gold producers, but it also hits the paper gold market. This happens because in order to create new futures contracts, sellers have to secure physical gold in a fashion that is deliverable under the terms of the contract. Sellers can get gold from different sources but would then have to melt it down at a refinery to comply. The short-run issues don’t necessarily change the bigger bullish picture but seeing gold rally to start the quarter as the market sold off was encouraging that order may be working to be restored.

    A product that tracks gold prices and is backed by physical gold is the SPDR Gold Shares (GLD). While Tuesday’s selling pushed it below the low of the gap day on March 24, the price did hold a support level near $148 and was able to trade higher on Wednesday by nearly 1%. While not a significant move, it is an early indication of support given Tuesday’s very directional sell-off.

    The near-term prospects for GLD are likely for it to remain range-bound, but there is significant long-term bullish potential. The near-term target Is for the price to retest resistance at $155.

    Option traders might want to consider a high probability setup by selling OTM options. The 15 MAY 20 143/142 short put vertical spread can be sold for around $0.25 or more. The max gain of $25 a contact or 33% will be achieved if the price closes at or above $143 by expiration and has around a 65% probability of max gain. Consider closing early if the vertical can be bought back for $0.07 or less.

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