Trading Lab Morning Email (5/30/2019):

In a world awash in uncertainty ranging from Trump's trade wars to Middle East conflicts (Saudi Arabia vs. Iran, Syrian civil war, etc.) to slowing/stagnant economic growth in developed economies, gold has remained remarkably stable throughout much of 2019. In fact, gold's close on the first trading day of 2019 was $1284 and yesterday's close was $1286. Truly remarkable.

Naturally, sentiment is weak on the yellow metal as investors tend to become bullish on things that are rising in price, not stagnant. The outlook for gold is so placid that most investment bank research teams have US$1,300 end of year price targets, and many have gold remaining stable near $1,300 through the end of 2020. In fact, this has become quite a consensus opinion. $1,300 gold for as far as the eye can see.

The GVZ (CBOE Gold Volatility Index) closed yesterday at 8.88 and it is essentially at its lowest levels since inception:

GVZ (Daily)

As a long time gold market observer I can't recall a setup similar to what we have right now:

  • Gold price is stable and outperforming other precious metals such as platinum and silver.
  • Sentiment is extremely weak.
  • Consensus has it that the gold price will remain stable for at least another 18 months.
  • Both realized and implied volatility are at record lows.
  • The macro backdrop couldn't be much less stable and the global sea of debt has never been larger.

Turning to the gold chart I see a constructive technical setup with the potential for a bull flag on the weekly to resolve higher, and in turn potentially trigger a sizable rally ($100+):

GLD (Weekly)

Of course, the crowd could end up being right and gold could remain stable for many months to come. However, markets have a way of punishing complacency and creating large moves when the herd least expects them.

I will be a buyer of GLD $125 August & September call options today. I will have details in the Trading Lab later this morning. 

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