Gold is Ripe to Short

A few months ago I recommended buying Gold ~116 based on the fact that Gold was at support from trendline B. I went long and soon after Gold dropped to ~113.7 and I exited my position because I believed I had been wrong about my analysis. Then I watched for the next few months as Gold steadily climbed and hit my 122 target without me! I was completely shook out of my position.

Looking back I probably should have given more importance to support at 113.7 and waited to see if Gold held but I don't regret my decision to exit based on the fact that a rally in SPY was underway and I expected it to carry us back to 116-122, and so that dumping Gold would be natural. Furthermore having entered Gold at 115.6 and having Gold drop 2 points on me, I felt that was getting to the point where I had to cut the loss.

At any rate the reason I haven't posted on Gold in a long time is because I was pretty frustrated with it so I needed some time to cool off before I could make a rational decision.

Now Gold is at resistance from technical level 122.2 (Also a triple top). Trendline A is the relevant uptrend line, not B. Once again I believe SPY is ready to rally to at least 112.4 from our current ~109 price and most likely to 116, with a possibility of hitting 122 and new highs. Gold will selloff so that investors can use their Gold profits to buy stocks.

So I am now anticipating a pullback in Gold to ~118, not a very huge move but one that could still be profitable. So I'm going to take a small short position here with an october/september quarterly 118 calendar spread at 50 cents. The idea here is to buy the october 118 call and sell the september 118 call. I expect Gold to pullback for the duration of September. By the end of september I expect Gold to be ~118-119, so I'll buy back the September 118 call at a discount of ~$3 and hold on to my 118 october call for the Gold rally off of trendline A. I use calendar spreads often to short/go long and I thought the current Gold situation is a perfect one to illustrate how to use it. The risk is small and limited to 50 cents if Gold decides to tear through 122.2 to new highs. And if after a week Gold has not shown any signs of selling off then I could still sell my calendar spread at ~20 cents and take a loss of 30 cents. So it's a calculated, low-risk play with good profit potential.