The capital markets are expecting a rate cut with algorithms like the CME FedWatch Tool calculating a 93% chance that the central bank will institute its third straight cut in 2019. How should gold traders play the move?
“You have demand now from momentum traders. We have options expirations on Monday on the Comex. I talk about the fact that price makes the news. Prices got the attention of global traders. We are going to lose a lot of open interest from short-covering,” RBC Wealth Management managing director George Gero told Kitco News last Friday.
Some analysts are forecasting weaker economic data to come, which should feed into gold strength.
“We bounced off $1,480 level, which has been a bit the support recently. We continue to see weaker economic data from the U.S. in particular and that has helped strengthen the case for a cut next week,” said TD Securities commodity strategist Ryan McKay.
“Fresh weak economic data is really increasing expectations that the Fed is going to do that cut next week. Weaker durable goods versus expectations for the second month in a row got traders scratching their heads about the health of the economy,” said RJO Futures senior market strategist Phillip Streible. “We also saw weaker data come out of tech stocks, which is a big growth sector. Those kinds of concerns really got people slightly worried.”
Gold currently stands at just over $1,500 per ounce, but a key level according to Streible is $1,525. An even bigger goal is $1,550, which could open the pathways more year-end price targets of $1,600.
“Gold has to get above $1,525 and then we can clear the way. If we can close the month anywhere near $1,550, those expectations of the $1,600 year-end target actually have a chance,” Streible said.
Bulls or bears can take advantage of leveraged or non-leveraged funds in precious metals. Investors looking to invest in precious metals ETFs could try the SPDR Gold MiniShares (NYSEArca: GLDM) and SPDR Gold Shares (NYSEArca: GLD) as a great way to play the market, while silver bulls could try the iShares Silver Trust (SLV) and the Aberdeen Standard Physical Silver Shares ETF (SIVR), two of the largest exchange traded funds backed by holdings of physical silver.
Traders looking for leverage can use funds like the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), VanEck Vectors Gold Miners (NYSEArca: GDX) and the Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG).
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