(Kitco News ) - Although gold has solid momentum to move higher, now is not the time to chase the market, according to one strategist.
“Chasing the gold at these levels is a tough game,” Carley Garner, co-founder of the brokerage firm DeCarley Trading, said in an interview with Kitco News Thursday.
Garner said that in the current environment, her price target for gold is around $2,650 an ounce, up from $2,400 an ounce, where gold is now consolidating around.
“Even if gold is going higher, which I do believe it is, this is a very treacherous market with a lot of downside risk,” she said. “If momentum does shift, we could easily see gold prices back down to $1,980 an ounce very quickly. You could buy a little bit of gold here, but I wouldn’t place any big bets. I think you want to save your big ammo for a pullback.”
Garner said that for patient investors, she sees any bull back to $2,330 or $2,300 as a good entry point.
However, she also noted that there is an interesting trade brewing in the options market.
Garner said that she is currently looking at a ladder options strategy. She said that a trader could buy an August call with a strike price of $2,450; at the same time, they would sell August calls at $2,550 and $2,600.
Garner pointed out that the credits from selling the two call options would pay for the original trade.
Because the fees are covered by the credits, there is literally no downside risk to this trade if gold prices fall. However, Garner said there is unlimited upside risk if gold prices rally towards $2,700.
While it's difficult to see gold prices pushing that high before the summer, Garner said a move to that price target is not out of the question.
“If everything happens all at once and there is a lot of chaos in the market, prices could easily get to $2,700 an ounce,” she said. “This could be a really good way to get into gold if you understand short options and can manage your risks. But you can’t afford to get complacent.”
Along with gold, Garner is also paying closer attention to silver. She said it remains an attractive asset to buy as prices hold above $25.70 an ounce.
However, she also warned investors not to chase silver and instead should look to buy on pullbacks.
“As long as silver can stay above $25.70, it has a solid chance of going higher. My target for silver would be $32 to $33.”
