Over the last year as the US Dollar began it's massive run, the myriad of Gold related products has been generally out of favor as the performance of these products has been poor. 2015 is a year of change. There are rotations in many asset classes, and price extremes in a few. One of the things I have noticed on my own charts is how well Gold has been performing in 2015.
Above is a simple chart showing the relative performance this year of the GLD ETF versus the S&P 500 index. With the SPX down about 3% and GLD up about 5% I have hatched a plan for long exposure to gold upside with limited risk to the downside.
Back on 15 January, I noticed a large increase in GLD trading volume on the breakout of the 120 level, which was also the level of the 200 day SMA. Obviously charts don't guarantee anything, but every once in awhile I like to think that I see a bread crumb or two left by a group of traders or institutions that move a whole lot more money than I do. After that 120 breakout to the upside, momentum drove the GLD to 125. I was tempted to chase (unfortunately I always am), but this time I figured that GLD would roll back a little and give me the entry I was looking for. Today it has.
So here's how I'm exposing myself to GLD upside for 6 months above the 122 level:
The easiest way to explain this is by saying I sold a put credit spread lower the cost of a long call. I sold the 122/112 Sep '15 GLD put spread to buy the Sep '15 122 call, all for $3.05 net debit. So, I have unlimited (theoretically) profits to the upside, but I'll probably put a limit order to sell at $20.00 and check on it in a couple of months. My max risk at expiration is $13.05, which is the distance of the put spread plus the net debit for the upside call. My near term risk is contained somewhat by the premium contained in the structure of the spread.
I'm giving myself a lot of time to be right on this one. What I'm looking for is a breakout above the 125 level, and hopefully a higher high around 135 or 140 on sustained momentum. If January is any indication of how gold will perform in 2015 as the US dollar rises, I think I will be find.
Happy to join all of you gold bugs in 2015.
I will update this trade here and on Twitter @B50cal1978
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