Gold to extend losses - stay firm with collar spreads on XAU/USD

FX:XAUUSD   黄金/美元
787 1 9
The investors in yellow metal have been skeptic on Fed's rate decision on the back of mixed bag of US economic reports.

Yellow metal far month contracts for December delivery on the Comex division of the NYME traded between $1,106.30 and $1,122.30 an ounce before settling at $1,110.30, down 3.80 or 0.35%. Gold futures             closed lower for 6th consecutive session.

Technical Inference:

The precious metal has surpassed all major price levels where supply was seen more than demand and for now likely to find support at $1,105.20 levels, if it does not mange to hold these levels then 1096 areas cannot be disregarded.

The precious metal has been tumbling consecutively from last couple of weeks but as stated in our earlier post we think it should test support at around 1096 levels to bounce back.

This week’s closing would be keenly observed, if it manages to hold 1105 and 1096 then sharp bounces are certain, otherwise it’s going to be pure gamble for expecting upswings ahead of Fed’s monetary season next month.

RSI justifies dipping prices: The pair at this psychological juncture testing supports, while RSI still evidences downward convergence with sharp declines (Currently, trending around 41.3439 while articulating).

Stochastic bearish supports momentum: To substantiate these price slumps, slow stochastic curves view on weekly charts signifies to remain in sync with the standpoint offered by RSI . A perfect %D line crossover exactly at 80 levels which is overbought zone bolsters selling pressures, (Currently, %D line is at 53.0303 and %K at 25.9413 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 this commodity for targets of 1096 levels with strict stop loss of 1115 levels.

Hedging Frameworks:

The strategy is for those risky traders who have this commodity exposure at present and are concerned about a correction and wish to hedge the long spot commodity position. 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 same expiration date and similar deltas. In commodities 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.
thank you for the analysis! on money ;)
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