Has the pain in the gold market run its course? - Carley Garner
(Kitco News) - For the past three months the gold market has been trapped in massive liquidation move as investors sell everything to hoard cash; however, one market analyst said that this phase in the gold market could be close to an end.
In an interview with Kitco News, Carley Garner, co-founder of the brokerage firm DeCarley Trading, said that gold has been largely ignored as investors having been "hitting the sell button across the board."
However, she added that gold won't be ignored much longer as speculative positioning has made it attractively undervalued.
"We are flushing out the last of the investors who are holding on with their fingernails. These are the people who have given up on the idea of higher gold and silver prices, which ironically is probably when things get close to turning the corner," she said.
The latest tade data from the Commodity Futures Trading Commission shows hedge funds are the most bearish on gold since May 2019.
"Some large speculators are close to being net short,which is you don't see very often in gold. When you do see that sort of thing, it's usually a sign that most of the, the pain, the downside pain is run its course," she said.
Carley's outlook on gold comments come as the precious metal continues to struggle to find consistent bullish momentum. However, the price is also holding critical support above $1,700 an ounce.
Not only does gold look oversold, but Carley said that the U.S. dollar looks overbought and is entering a seasonally slow period. The U.S. dollar, while still elevated has fallen from last week's 20-year highs.
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Carley said that while she is bullish on gold in the near-term, she doesn't rule out a drop below $1,700 an ounce. She added that there are ways for investors to protect their bullish bets in gold.
Carley explained that in the current environment, she sees an opportunity to play gold through the options market. She said that she likes the idea of buying a December $1,800 or $1,900 call spread and sell a $1,600 or $1,625 put to pay for the trade.
"Basically, you're getting into the market without spending a lot of money on options. As long as the market doesn't drop below whatever strike price you decide to, to sell, to finance the call spread, you're not in bad shape," she said. "With a strike price of $1,600 you have almost a hundred dollars in room for error. Any bullish positions that anyone puts on here should have definitely have some room for error."
Although Carley is bullish on gold in the near-term, she added that investors need to be aware that the precious metal is still in a long-term downtrend. She added that prices would have to rally more than $100 to reverse the current trend.