The chart above contains the nub of my observations about gold. I tend to invest in gold through iShares’ ETF, IAU, rather than the ubiquitous GLD, which is why you see that chart above. This commentary contains both general observations about gold, but also my personal goals for it, because our personal goals color how we view the market.
I am a long term (> 10years) bull on gold and plan to have ~10% in gold and other precious metals in each of my two long-term portfolios, one of which is tax deferred, the other being taxable. I was not fully invested in either portfolio and was about even in my gold holdings, having taken most gold profits in August (see earlier posts). It will give you some idea how quickly this market has changed in that yesterday and today leave me with very different price tartgets.
Yesterday, I had hedged out 50% of the position in my taxable account with a 25% portfolio value position in GLL. (ProShares ultrashort gold). I was seriously mooting buying $16 puts (for profit and portfolio protection) and selling $15 puts both to reduce the cost of the $16 puts and because I would be quite happy to purchase IAU at $15/share. My thinking has been that I have been prepared to see IAU sell off to ~$15.20 and still remain in the bullish channel it has inhabited since late 2008. Although I still expect long-term gold to continue in that channel, short-term, I think we may certainly go to ~$14.60 a share for IAU.
I do not usually place order to execute at the open but today I did and it was a good call. I fully hedged my IAU position in the tax-deferred account with GLL, sold half my long position in the taxable account and matched the remaining long position share for share with GLL. So I am positioned short, effectively. As it turns out, good call. The 200-day SMA provided no support to IAU at all.
One reason I placed orders at the open was because looking back to the gold sell-offs in August and September, the sell-offs were precipitous. Matching the price drops in those two sell-offs in the current market takes us right to the base of the current Fibonacci retracement. While we may yet see a move sideways at around $15.20, I think there is a good chance IAU goes to ~$14.60. I have marked those price ranges on the TC2000 chart above and marked them with the curved arrows.
So, what to day about the put spread? I am still toying with the strikes on that one. It’s almost buy at $15 and sell at $14 tonight, same reasoning as outlined above. I will probably execute those option trades in GLD options though as there are more strike and expiration options in GLD. Putting those prices into perspective, if the support at $14.60 didn’t hold, next support is in the mid $13s.
Summary opinion if you are long gold for the long term: Still bullish, actually over the next twelve months. Worthwhile hedging or protecting positions though, and picking some gold up at cheaper prices in the coming week or so. If you have missed the boat so far to the downside you must make your own call on whether to step in now, but my humble opinion is that some hedging — either with inverse ETFs or put options — will not cause you too much buyer’s remorse.