Natixis Offers A Strategy To Play This Gold Market

(Kitco News) - One day gold prices are up 1.5% and the next day it is down just as much; and with prices coming off a new six-week high, it can be difficult to know how to play this market.

However, one bank is offering a strategy to play the market as they expect gold prices to remain relatively range-bound in the near-term.

As of 1:02 p.m. EDT, December gold futures were trading at $1,137.1 an ounce, down 1.43% on the day.

In a research note published Monday, French bank Natixis said that while they don’t expect gold prices to rally “significantly” in the near-term, they are expecting prices to hold the $1,100 an ounce level.

Bernard Dahdah, precious metals strategist and author of the report, added that with increased market uncertainty, he is expecting gold prices to outperform other precious metals like silver and platinum, which have strong industrial uses.

“We recommend selling 1 month put on gold at $1,100/oz and buying puts on other industrial intense metals,” Dahdah said in his report.

In two examples, Dahdah recommended a one-month strategy: selling one $1,100 put contract on gold and at the same time buying a one-unit $550 put contract on palladium; in the second example, along with selling the gold put, he recommended buying a 20-unit silver put at $14.50.

“In a climate where there is much concern about Chinese growth and consumption, Chinese industrial demand is being hit hard and as a result metals with industrial use have suffered a sharp drop,” he said.

At the same time, Natixis said it was slightly more positive on gold prices as expectations for the Federal Reserve to hike rates as early as September have dropped significantly, with markets pricing in a 32% chance of a hike.

The bank also said it sees potential as market uncertainty and continued weakness in equity markets will support gold’s safe-haven appeal.

Courtesy: Kitco News