The precious metal has surpassed all major support levels where supply was seen more than demand and for now lingering resistance at around $1,071.20 levels, if it does not mange to break above these levels, then 1060 areas cannot be disregarded.
The recent upbeat US economic data coupled with increased bets on Dec Fed rate hike gave a double blow to the yellow metal, knocking-off the bullion to the lowest levels since 2010.
Last week's breach of 1096 on a closing basis have prompted us raise cautious approach on this precious metal, since it was not managed to hold above strong supports, we still anticipate sharp dips which are certain events ahead until fed’s decision, otherwise it's going to be pure gamble for expecting upswings ahead of Fed's monetary season.
confirms continuation: The pair at this psychological juncture testing supports, while still evidences downward convergence with sharp declines both on weekly and (Currently, trending around 49.1758 while articulating), so this indicator justifies current prices dips.
supports momentum: To substantiate these price slumps, slow curves view on weekly charts signifies to remain in sync with the standpoint offered by . %D line crossover is maintaining even below 20 levels which is oversold zone bolsters more selling pressures, (Currently, %D line is at 6.7009 and %K at 5.1144 while articulating).
10DMA: As we all know moving average is a lagging indicator, the 10DMA was also suggesting the prevailing price declines to prevail for some more time.
Hence, contemplating all above technical reasoning, it is advisable to short rallies of this commodity for targets of 1060.85 levels with strict stop loss of 1074.50 levels.
Hedging & Speculative Perspectives: Option Collars
Precious metal far month contracts for December delivery on the Comex division of the NYME dropped $1,062.30 an ounce during European early trading session. Yesterday Gold CFDs closed lower at 1069.94 for 6thconsecutive trading days.
The strategy is for those risky traders who have this commodity exposure at present and are concerned about further correction. The hedger takes following positions to constructs this strategy:
Write an OTM call option + hold an ITM put option (near month Call & mid month put). Writing OTM calls may likely to fetch certain returns since any abrupt slumps in near future may be taken care by this instrument.
This helps as a means to hedge a long position in the underlying outrights by holding longs on protective put. Thereby, any declines in this commodity would be taken care by ITM put options since the holder of the put option will have right to sell at predetermined strike price at expiry in case of American style options.
The options will have the similar deltas, in trading it is used for hedging which consists of selling a call and buying a put option. This strategy protects against unfavorable, downward price movements but limits profits that can be made from favorable upward price movements.
So thereby we end up saying, Right entry points would determine the cost of trading.
Cheers and happy learning..!