E Another Gold Record, Another Golden Buying Opportunity

As of today, buying the SPDR Gold Shares (GLD) the last time gold futures set a record would have yielded about a 20.7% gain while the S&P 500 (SPY) gained 14.4% over the same time period. Another important juncture likely arrived with the CME Group announcing that its Precious Metals markets hit a record 1.55M contract volume on August 11th. The previous record of 1.51M contract volume was set on February 28th. 

(Click on image to enlarge)

SPDR Gold Shares (GLD)

Source: TradingView.com

To get to the 20.7% gain on GLD required first suffering a 7.0% drawdown after watching a quick rebound fade into a fresh sell-off. The S&P 500 suffered a whopping 24.3% drawdown over the same time period. In other words, in hindsight, the risk-adjusted reward strongly favored gold after February's contracts record. I think the same opportunity applies now as GLD falls off its all-time high and the S&P 500 closed just short of its all-time high. Interestingly, when gold set the previous contracts record, GLD tested its 50DMA uptrend while the S&P 500 confirmed a 200DMA breakdown.

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S&P 500 (SPY)

Source: TradingView.com

I maintain a core position in GLD shares and trade around with call options. This sharp pullback in GLD looks like another golden buying opportunity. I jumped into a single October $190 GLD call option to start the trading. I will look to accumulate a larger position if GLD continues to fall, and I may stretch out the expiration. I am looking for the 50-day moving average (DMA) to hold support.

The sharp drop in GLD does not surprise me given the move far outstripped the recent sell-off in the U.S. dollar index (DXY). After two months of sharp selling, the U.S. dollar looks like it is finally stabilizing a bit. I am looking for GLD to start a fresh rally by the time the dollar resumes its sell-off.

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U.S. dollar index (DXY)

Source: TradingView.com

Silver also hit a record. Per the CME: "A record 397,000 Silver futures contracts were traded on August 11, 2020, surpassing the prior record of 329,000 set on August 7, 2020." I have a core position in shares of iShares Silver Trust (SLV), but I sold August $25 call options against them after SLV went parabolic. I am content to wait out this selling cycle for a better buying opportunity.

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Disclosure: long GLD shares and call option, long SLV

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