The last few weeks haven't been kind to gold, and the recent strengthening of the US Dollar versus the British Pound contributed to another big drop in early October.
Recent announcements by officials from the United Kingdom have suggested that their official exit from the European Union could occur in early 2017 - news which consequently knocked down the British Pound (versus the Dollar). With gold and the Dollar inversely correlated, gold slid through $1300/ounce and plummeted all the way to a 3-month low of around $1266.
Falling below the "big" psychological level of $1300 certainly caught the attention of gold bugs and traders around the world - and it's likely that price volatility in this precious metals trade could heat up in the near-to-medium term. Gold has thus far traded with a high of about $1374 and a low of $1063 in 2016.
With at least one interest rate hike broadly expected in the United States during the fourth quarter of 2016, gold prices had already fallen off their summer highs - news out of the United Kingdom seems to have simply accelerated the decline.
The big question now is of course if and when an interest rate hike finally arrives in the US - an outstanding question that will without a doubt dictate where gold is valued at the end of the year.
Looking ahead at the macroeconomic calendar, the US Federal Reserve has two more meetings scheduled in 2016 (November and December). The US Presidential election in November could also be a factor, as well as news out of the United Kingdom and Europe.
If you are managing positions in gold-related futures, stocks, or derivatives - or entertaining the idea of doing so - tastytrade has an extensive library of information that may help you refine your understanding and trading approach.
One episode that may be of particular interest to traders interested in gold exposure can be found within the Market Measures series, titled "Gold Volatility."
The show highlights some of the more popular instruments for accessing gold exposure (futures and ETFs) and examines gold's correlation to other important market drivers like the S&P 500 and crude oil. The show also details the behavior of gold volatility relative to movement in the underlying commodity as well as to changes in the VIX.
If you want to dive into the technical aspects of trading gold futures, another episode that may interest you can be found within the Closing the Gap: Futures Edition series. On this show, tastytrade’s resident futures expert, Pete Mulmat, dissects calendar spreads in gold. This particular episode focuses on how traders can effectively get short gold without getting outright short in the futures contract.
For additional information on the gold trade, we also recommend:
We hope the above information will help you identify the right trading opportunity for your portfolio and unique risk profile. However, if you have any questions or need additional information, we hope you’ll reach out at email@example.com or leave a comment below.
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Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.