I’m not sure I ever recall uttering a positive word about Gold as an fundamental investment in the pages of RiskReversal. I’ve spoken about it from a techincal peespective. And since the shiny metal got off the mat in early January I have highlighted what has seemed to be a relentless demand for calls in the GLD (gold) and GDX (gold miners) here, here, here, here, here, & here.
The most compelling argument I have heard this year for owning gold (or securities that benefit from the rise in its price) came from Mark Cuban, billionaire owner of the Dallas Mavericks. It came back in early February when the financial world looked on the precipice of a recession and markets in full crisis mode. Cuban’s reason at the time for buying gold (I think expressing the view in GLD calls) was simple… confusion & uncertainty are ruling markets and the global economy, so buy Gold because there are no shortage of ways that view can turn a profit. Watch his interview from CNBC on Feb 11th, the day the SPX bottomed, yet Gold broke out:
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Today Gold is once again breaking out to a new 18 month high:
Taking a view from Gold’s 2011 high above 1900, the move off of the Jan lows shows a clear break of the downtrend, just now breaking near term resistance at 1300, with the next fairly important technical resistance level at 1400, above that there is room to 1600:
I’m not suddenly becoming a gold bug. But I can concede the reasoning for being long in the current environment, and acknowledge the increasingly constructive technical set up. If you’re a johnny come lately to gold, it’s important to consider the following while considering how to express a defined risk bullish view:
The recent risk off environment in most global risk assets has caused speculative or protective buying of options to become a shit-ton more expensive. Short dated implied volatility in GLD shot up with spot VIX. It has risen from 15% to 21.5% since the start of June, while spot VIX during the same period has risen from 13 to 22.70. It’s my sense that the best post Brexit vote trade, no matter what happens will be to sell volatility, not sell stocks, or commodities directionally, but use strategies that benefit in the very near term from an easing of market tension. With the SPX down only 3% in the time while VIX has shot up 50%, short premium short delta trades in the SPY could be the way to play, or if remain bullish of Gold, short premium long delta positions in GLD. We will update this view with some examples.