In early trading today Gold is up another US$24.00 / ounce. The DEC19 Gold futures are trading 1552/ounce this morning. The $US Dollar has significant gains today. And the DJIA is down -341 points near 26,061.
The professional traders are “exhausted with volatility,” is the way one of the major analyst describes it this morning. Crude Oil is around $53 a barrel and is down about US$ 1.80. Late last week, trading mavens suggested that “the Gold price climb is getting exhausted and it is way overbought and due a correction…”, then it’s up over $26 an ounce at midday today.
These markets are clearly not anything to call “steady” or even “trending.” Crude Oil prices, a year ago in October 2018, peaked around $75 a barrel. The Saudi’s have since cut production by about .5 million gallons and you can see on the chart below that prices dropped about 30%. What used to be called “OPEC” added a few nations to the production alliance but these countries are not officially in OPEC. Now the reference for this group is “OPEC Plus.” They have a meeting this week to announce compliance with “continued cuts” in production. But the major reason that Crude (WTI) prices have fallen from $75 to the present $53 is that during the last year, the United States of American increased production by 1.5 million barrels per day.
The USA now produces about 12.5 million bpd, an increase of 1.5 million bpd since last October (2018):
Since there is no real fundamental reason for Crude Oil to go back up with supplies so plentiful and all of OPEC Plus cuts continue to be swamped by USA production, I will be shopping to sell more Crude Oil CALLs, soon and try to take a profit of my present short DEC19 75-strike CALL.
Gold: This metal has run up so much and so rapidly, I cannot bring myself to sell PUT options at this time, any sudden price corrections could be a disaster. This is a matter of I’m aware that just one Tweet by POTUS (President Of The United States) suggesting even a possible China trade solution could cause gold prices to fall rapidly. I am giving thought to shop for gold CALL options to sell far above the present prices- and I hold the opinion this would be safer than selling PUTS at this time. I’ll see what happens this week and give this idea of selling very far OTM gold CALLs more consideration.
Corn and Soybeans: With the next USDA WASDE (supply-demand estimates) coming up in two weeks, it is my expectation that those numbers and the soon-to-be Northern Hemisphere harvest season rapidly approaching (mid-to-end SEP into OCT), —will give me reasons to sell options AFTER the crop production adjustment are made this month. By the way, for now – I am primarily watching these futures contracts in the grains: DEC19 Corn and NOV19 Soybeans.
If I seem cautious, even overly-cautious, it is became I am. As badly as I want to place new positions right now, I know that rushing those trades just to have them out there — is a trial of patience. Every week that goes by reveals what “could have been” and reveals only with perfect hindsight what “might have been.” Unfortunately, this perfect hindsight is never present in the current day – as all traders understand. If you are new to futures trading, you should know that in most seasons – the trades do not swing on hourly headlines, but crop fundamentals – the basic realities of supply-demand usually govern the markets price behavior.
In the grains just now: the Corn prices are softer than the Soybean prices (meaning corn prices are heading down faster than soybean prices.) What some of the crop tours (USA) are revealing is that Corn production might not be down nearly as much as was thought, and that soybean plantings seem to be down more than was thought. This opens possibilities of maybe, if corn prices continue to slide, selling PUTs. And if soybean prices rise a bit due to less production, there may be an opportunity to sell into the soybean harvest season. I will probably wait until the SEP WASDE report to move on these.
As I’m concluding this commentary at Noon ET, Gold is up almost $30/ ounce today. Volatile markets continue.
That is all for today. I’m in a caution mode right now but always alert for opportunities (just not the ones that are clear in hindsight only.) This is a short trading week due to the Labor Day holiday yesterday in USA markets. Have a good week.
When I have more, I’ll write it up here and send an immediate email to alert you.– Don
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