Gold is seen as a safe haven for investors when other markets are too volatile. For example, when equities are on the decline, chances are gold prices will rise. For this reason, gold options traders should keep a close eye on economic data that impacts the stock and other markets to attempt to predict movement of the precious metal.
One report that has had an impact is on manufacturing, which was recently released showing U.S. factory activity increased in March. Production posted its biggest gain since the recession – a sign that the economy could be headed in the right direction after a slow winter, according to Reuters. If the economy continues to gain momentum, gold options traders should be aware the prices may fall.
However, experts say not to expect too steep of price declines, as demand could pick up if prices fall steeply.
“Given gold’s recent drop below $1,300 an ounce, we have noticed a slight increase in physical demand from Asia,” James Steel, chief precious metals analyst at HSBC, told Reuters. “Further weakness to gold prices may elicit stronger buying from the emerging markets and help cushion further losses.”
In fact, prices increased from a seven-week low based on speculation that declines could spur purchases of bars and jewellery in China, according to Bloomberg.
“People are betting on increased physical buying and bargain hunting at these levels,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, told Bloomberg.
With an improving U.S. economy driving gold prices down, and the potential for Chinese demand pushing it the other way, a boundary option on gold could be a good move right now if traders can identify upper and lower levels in which they believe gold prices will remain.
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