Keep your eyes on everything gold today. There was a combination of an increase in jobless claims and increases in food and fuel supply prices reported today. Add in a poor employment situation report Friday and the scheduled forecasts from the Fed on GDP growth for 2012/2013, inflation, and unemployment projections and, finally, Ben Bernanke’s press conference to follow 15 minutes after the report as the cherry on top. Expect gold to react today, big time.
All this has happened after Bernanke's speech at Jackson Hole, WY, which promised that the Fed was ready to act if necessary. The US trade balance fell almost a billion dollars in the past month to $-42.0 billion. Projections released near the end of June had about a 2% change in real GDP for 2012 and a 2013 change from 2.2% to 2.8%. Unemployment projections for the 2012 calendar year were 8.0% to 8.2% and for 2013 from 7.5% to 8.0%. The September report, which will be released today, will help investors decide whether or not they think Bernanke will push for QE3. If QE3 is green-lighted, expect gold to do well.
Gold futures have been creeping slowly up to levels not reached since the end of February. Currently at $1735.60, futures have increased just 1.90 points so far today. Gold to be delivered in December 2012 (GCZ2), has increased 2.30% today and has been increasing steadily since June, when it was $1,550; it's now at $1,736.20 (SPDR Gold Trust ETF
(GLD), 168.04). Investors have been sitting back and watching their value grow since July. GLD was at a 52-week high almost a year ago at 179.53. It hit its 52-week low, 148.28, in mid-May and hasn’t looked back since.
QE2 was announced on November 3, 2010. GLD was about 136.00 on November 5, 2010 and by September 2, 2011 it was 183.23, about a 25% growth in one month short of a year. I expect the price of GLD to move about 2-3% over the next couple of months -- about a four-point gain.
The ATM Nov straddle is currently implying a move of $10. My trade will be to play a 174-178-182 call fly. My risk right now is about $0.24 and my max reward is $3.76. My two breakevens are $174.24 and 181.76.
No positions in stocks mentioned.