Strong Gold Rally Seen on China Demand and Bullish Options

Strong Gold Rally Seen on China Demand and Bullish Options

Strong Gold Rally Seen on China Demand and Bullish Options

$GLD

Gold’s rally eased a bit this week, but the look of both the physical and paper markets suggest it has got much more room to run.

Chinese New Year buying and option prices suggest the stars are aligning for the metal to extend its 6.5% gainer since 18 December 2017.

There is healthy demand from China and the futures market, Gold should break above $1,400 this year.

Options traders are betting on at least another month of rising prices. As they are  charging more for benchmark Call contracts than for similar Puts, and by the biggest premium since November.

The bias, measured in implied volatility, has increased to about 0.6 percentage points.

Gold tends to do well in January and February.

Demand spikes then in the biggest consuming nation, China. Over the past decade, the metal advanced by about 6% on average in the 1st 2 months combined.

The Chinese Lunar New Year, which is often celebrated with gifts of Gold in much of Asia, falls on 16 February this year.

The precious Yellow metal reached a 4-month high this week, crossed into Y 2018 with an 8 day rally, the longest string of daily increases since Y 2011. Now, according to RSI (relative-strength index), a technical momentum gauge.

As Gold is quoted in USDs, its upswing largely depends on whether the Buck’s losing streak continues.

Option prices signal that traders foresee USD falling over the next month Vs EUR, JPY and GBP. That’s good news for Gold bullion: The 120-Day price pattern is close to its strongest negative USD correlation since Y 2012.

HeffX-LTN Analysis for GLD: Overall Short Intermediate Long
Bullish (0.47) Very Bullish (0.53) Bullish (0.46) Bullish (0.43)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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