Geopolitical uncertainty and anticipated rate cuts have caused gold to soar throughout 2024…
From its February low, the SPDR Gold Shares ETF (GLD), which tracks the gold price, has rallied close to 27%.
And the “gold bugs” are making ever higher and crazier predictions about how high the precious metal can go.
But while they might be holding out for exponential gains, I’ve always traded gold a bit differently…
Rather than wait for outsized moves, I prefer to trade gold for quick profits. We did that last month for members of my options advisory The Opportunistic Trader…
In just five days, we pulled off a blended 29.5% gain – more than GLD has made all year.
As I’ll show you today, the trick is to wait for the right setup.
And you have to be nimble and bank your profits when you see them…
Repeatable Patterns
After surging into April, GLD transitioned into a sideways pattern.
Throughout that period, GLD traded in a narrow range between $210–230.
Pay attention to a familiar pattern after GLD hit those short-term peaks in April, May, and July…
SPDR Gold Shares ETF (GLD)
Source: eSignal
As the chart shows, those peaks and reversals coincided with the Relative Strength Index (RSI), a momentum indicator, retracing from near overbought territory (upper gray dashed line).
Then the failed breakout move in July reversed sharply. And that down move soon became overdone.
So I wanted to set us up for any potential bounce…
When a stock retraces sharply lower like this, bargain hunters often burst back into the market. That can cause a quick rally.
Yet I was also watching two key technical indicators closely…
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GLD had found support around the 50-day moving average (blue line). If that held, that would be a bullish signal.
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The RSI was bullishly making a “V” (green circle) right around the 50% level – a key area of support.
So on July 25, we bought a call option to capture a potential bounce.
A call option enables you to profit from a stock’s up move while also putting a cap on losses. The most you can lose is the premium you paid for the option.
And as the chart shows, we got our timing spot-on…
Our entry corresponded with the short-term low. Take another look:
SPDR Gold Shares ETF (GLD)
Source: eSignal
With our position in good profit, we closed out half of it on July 30 (three trading sessions later) for a 21.2% gain.
We kept half our position open to capture any further upside move. And that proved to be the right call…
With our position in even further profit, we closed out the remaining half later the same day for a 37.9% gain.
That equated to a blended 29.5% gain.
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As always, we generated this return in such a short period by trading options. Options magnify both wins and losses.
And because options have a finite life, time is always working against us.
But this trade shows yet again the beauty of trading options.
With the right setup, we brought in a handy profit in a matter of days.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict