The events in Ukraine this weekend could have a big impact on the gold trade.» Read More
Gold is trading higher on Thursday morning, rising up to nearly $1,450 an ounce, just as expected heading into the day's option expiration for the May contracts.
As many investors were long "put" options—which protected their positions above $1,500 and profited from a downside move—they must now exit these puts. (Learn More: CNBC Explains Put Options.)
This week, traders can exit their put positions by buying futures,offsetting these expiring puts. Or instead, traders can sell their puts, which market makers then hedge by countering the trade. The bottom line is we are seeing an overall increase in buying activity. This, coupled with an oversold market, can really bring some much-needed mojo.
The first major target that we expect to reach is between $1,455.80 and $1,458.50. From there, look for a move toward $1,474 to $1,478.20. Although Wednesday's floor close showed $1,423.70, the 4:15 Globex close pressed above $1,430 toward Tuesday's high. This provided momentum.
We're using $1,427 to $1,438.80 as support, and this level provides a solid early buying opportunity. The market is running into light resistance at $1,447.20, but overall price action at this level should encourage additional buying into options expiration at the floor close Thursday afternoon.
That said, a failure to hold between $1,437.50 and $1,438.80 will be very discouraging for the bull camp, and an inability to hold between $1,424 and $1,428 on a downswing will signal a collapse.
Gold climbed to its highest price in 10 days on Thursday, boosted by a weaker dollar and firm prices in other commodities.
Gold hit a high above $1,450 in the session, its highest since April 15, before it posted its biggest ever daily drop in dollar terms.
The correction never came.
The S&P 500 had every opportunity to try and shake out the weaker hands, but it did not. This is an indication of underlying strength, and I now believe that the rally still has more upside.
Earnings season has proven to be far less scary than the market had originally feared, and although the data have been soft, we still have the ongoing tailwind of the Federal Reserve's bond-buying program. We are back to a point where we see disappointing economic data as market positive, because it assures us that there will be no talk of a Fed exit.
I have adopted a bullish bias at current level of 1,580, and I see the market trading up to 1,610. I will rethink that bias on a settle back below 1,570.
Natural gas has been on a natural high. Even as crude and gasoline have gotten crushed this year — not to mention copper, gold, and a whole host of other commodities — nat gas has surged over 25 percent. This as the winter has been colder than expected, boosting the demand for natural gas, which is used to heat homes and offices.
The recent 13 percent two-day plunge in gold led investors to look for reasons. People have blamed the talk of Cyprus selling their gold, gold's general underperformance this year, or a larger move away from risk-off assets.
In a wide-ranging interview on CNBC.com's "Futures Now," the former U.S. representative from Texas noted that 53,000 gold contracts had been sold amid gold's decline, potentially moving the market. And Paul implied that someone in President Obama's administration could be behind it.
This has not been a kind year for crude oil. Even as stocks have risen over 10 percent, crude oil has dropped nearly four percent. This even though crude oil usually rises with the stock market.
There are two main views on what this means. Some say it helps consumers, because it means lower gasoline prices. Others, however, say that crude and gasoline are telling us some bad news about consumers that the market hasn't priced in yet.
(Read More: Will Stocks Get 'Gassed'?)
The firm's commodities research team said the decline in gold was more rapid than it expected, and it exited the trade with a potential gain of 10.4 percent, below its original target price of $1,450.
Back on April 10, when gold was ranging in the upper-$1,500s per troy ounce, Goldman recommended shorting the metal. At the time, it justified that position on the grounds that gold didn't move up significantly when markets were anxious about the bailout of Cyprus and restructuring of its banks.
(Read More: Should Traders Trust Anything Goldman Says?)
Goldman had forecast that gold would close out 2013 at $1,450 per ounce, and then take a hit in 2014 with a predicted close of $1,270. The analysts also thought perhaps they were a bit on the prescient side with that trade, saying: "While we may be end up too early in entering this trade, we prefer that to being late given our belief that the skew to current prices is to the downside."
Within days of that call, gold fell almost 16 percent to a low of $1,321 an ounce. While the bailout of Cyprus did not send gold higher, reports that Cyprus would sell gold to cover its shortfall sent the metal tumbling, as traders bet other European countries might also sell gold to raise cash.
Gold was trading lower Tuesday, after bouncing Monday to settle at $1,421, or $100 above its low.
"Our bias is to expect further declines in gold prices on the combination of continued (exchange-traded fund) outflows as conviction in holding gold continues to wane as well as our economists' forecast for a re-acceleration in U.S. growth later this year," the analysts wrote. They said the surprisingly rapid decline was probably accelerated by breaks in "well-flagged technical support levels."
Cynics might scoff at the timing and motivation of the call, but few traders can argue with Goldman's trading prowess.
"When you make more than 10 percent in a couple of weeks, that's a pretty good return," said Neal Berger, president of investment advisors Eagle's View Capital Management.
Still, despite Goldman's call, other traders see more tough breaks for bullion.
"Gold still has room on the downside," said Anthony Grisanti, president of GRZ Energy and a CNBC contributor. Grisanti noted an important sentiment shift in the pits, with traders now selling rallies whereas before they used to buy dips.
Ten-year bonds have broken out of a consolidation pattern and appear ready for more gains.
Weaker-than-expected manufacturing data in both China and the euro zone have pushed Treasury yields lower, and the 10-year yield now seems poised to test recent lows of 1.58 percent. Since the market remains unsure of the roles of gold and silver as safe havens, U.S. Treasurys should attract a disproportionate share of "risk-off" dollars.
One argument I hear frequently is that 10-year yields have limited downside, given their current level. However, this argument falls apart when you consider that the German 10-years yield 1.21 percent, which clearly underscores a thirst for perceived safety.
I have adopted a bullish bias in June 10-year futures at the current level of $133.10, with an upside objective of $134.07. On the downside, $132.24 would be a reasonable stop-out level.
The shorts are feeling the squeeze, but can the bounce in gold turn into a true rally?
Gold is trading higher this Monday morning, and above the important $1,424 to $1,428 level. In the morning session, it reached our next resistance point, when it hit a high of $1,437.40.
So why is gold getting bid up?
Actually, it's pretty simple. With Friday's price action providing a close above $1,400, investors and traders are using the more stable price action as an opportunity to hunt for value. With headwind resistance levels at $1,437.50, $1,447, and $1,455.80 to $1,458.5, the major upside target will ultimately be $1,474 to $1,478.
(Read More: Gold Rises as Buyers Swoop; Gains May Be Short-Lived)
Option expiration is this week, and many investors who protected long exposure by using put options or speculated short positions will be looking to close these options by buying futures or outright exiting the puts, which will help the market to bounce. This recovery, although strong this morning, is likely a consolidation rather than a reversal.
The bottom line: Look for a close above $1,455.80 to $1,458.5 to encourage more buying. A failure to close above $1,424 to $1,428 will be discouraging to the bull camp, and a new low on the session against $1,403.50 will be very bearish.
It's been a big help to the consumer—but maybe it should be a big worry to stock investors. That would be falling gas prices.
Over the past two months, unleaded gasoline prices have dropped by 18 percent, while the S&P 500 has risen nearly 4 percent. And here's why that could be trouble: Carter Worth, chief market technician at Oppenheimer, points out that every time the S&P has corrected by 5 percent or more since the market's March 2009 low, gasoline has either led that drop, or fallen with the market.
(Read More: Scary Pattern Could Be Forming on S&P 500 Chart)
Right now, the chart of the S&P 500 vs. unleaded gasoline shows a clear divergence:
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