Quick Take: Levels to Watch in Gold and Oil

Alan Knuckman looks at key areas in gold and oil and suggests an options trade in December gold futures.
By Bret Kenwell ,

NEW YORK (TheStreet) -- With Wednesday's Fed minutes looming over the price of gold, Alan Knuckman, chief market strategist of Trading Advantage, takes a step back and tells Jill Malandrino of TheStreet about a longer-term opportunity in the yellow metal.

Although gold typically enjoys a strong summer, 2013 has not been its friend as the season begins. The commodity just suffered its worst quarterly decline, falling 22% over the three months ended June 30.

The tide may be turning, though, according to Knuckman, who says the selling pressure is beginning to run out of steam. He added that while the U.S. dollar continues to make new highs, gold has stopped making new lows.

To play the upside move, Knuckman is running a December $1,300/$1,350 call spread in the futures market, citing that $1,350 had been solid support for the metal over the past couple of months, before turning south.

The strategy is approximately 5% out of the money and costs about $1,600 to put on, but a breakout above $1,260 could quickly turn this play, which has five months until expiration, into a winner.

Shifting over to black gold, Malandrino noted that oil could be in for a rude awakening on the back of strong inventory and its recent tendency to flatline. Still, with the breakout over $92, which quickly ran the price to $99 a barrel, Knuckman says $106 isn't out of the question.

He added that if we do get to that level, $110, the upper end of a multi-year range, would become a possibility as well.

Crude was already on its way up, but the recent turmoil in Egypt has only added fuel to the fire -- no pun intended.

-- Written by Bret Kenwell in Petoskey, Mich.

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Bret Kenwell currently writes, blogs and also contributes to Rocco Pendola's Weekly Options Newsletter. Focuses on short- to intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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