Wednesday, March 18, 2009

Fools GLD

The weakness in gold continues... Assuming we don't see a huge intraday reversal, GLD will end the day breaking it's 50 MA, and primary trendline. Could be an ominous sign for the gold bulls.


I highlighted an April 100-105 bull call spread on GLD in this post, which needless to say has not worked at all. One of the benefits of using an OTM debit spread is it has small, defined risk (the 100-105 Apr had $1 risk) which can be greatly beneficial when the underlying stock undergoes an adverse move.

Remember gold has long been considered a safe heaven and inflation hedge. Therefore it tends to go up as inflation becomes more of an issue or when people lose faith in the equities market and feel gold may be a better investment. So one could argue that generally if gold is falling (money is flowing out of gold), that should be bullish for equities (part of money coming out of gold could be moving into equities).






The FOMC announcement comes out here in about 30 minutes, so we'll see what affect that has on the market....

Tyler-

2 comments:

3percenter said...

That spread would've worked out pretty well after the FOMC announcement, eh? I think people are slowly beginning to realize the inflationary effect all this money creation will start to have very soon. Go GLD! (I'm in a 105-110 bull call)

Tyler said...

Yeah there's no doubt the GLD bulls were happy with the reaction. Unfortunately, given the sickly pre-fed announcement trading, I got stopped out of half my GLD position. You gotta love that whipsaw...