After its recent sharp pullback, gold may see a relief rally in October. Carley Garner, co-founder of DeCarley Trading, stated that although she remains bearish on precious metals over the medium and long term, the current low levels, technical support and favorable seasonal factors have created an attractive short-term tactical buying opportunity for gold.
Garner said bluntly in an interview that she does not expect gold to surge to $5000 or $5500 per ounce, but she judges that a move of "300 to 400 points" is more likely to be on the upside. She pointed out that gold usually benefits from seasonal patterns at this time of year. Historical data tracked by her shows that buying gold on September 29 and holding until October 25 generated gains in 12 out of the past 15 years.
Meanwhile, the December gold futures contract has held an important daily trendline during the latest sharp drop. Garner believes this means the market may have at least formed a stage bottom, but she emphASIzed that this is more like a "relief rally" rather than the start of a new long-term uptrend.
Short-Term Tactical Long Strategy
In terms of trading strategy, Garner reminded that the capital threshold and volatility risks of standard 100-ounce gold futures contracts are not friendly to small traders. Therefore, DeCarley Trading suggests that if gold is near $4200 per ounce, traders who want to participate directly may consider micro gold futures or even 1-ounce gold futures to reduce overall exposure.
She said the firm is currently promoting an options strategy designed to profit from a potential rebound. To further control risks, traders may adopt similar ideas on mini gold contracts or 1-ounce contracts.
Garner explained that the core of this strategy is to sell one December $3900 put option, and use the premium received to buy a $4300/$4450 call spread, namely buying the $4300 call option and selling the $4450 call option. She described this approach as "using the market’s money to buy a call spread".
However, she also clearly warned that the downside risk of this strategy cannot be ignored. If gold falls sharply below $3900, relevant risks will rise significantly. She described the risk below $3900 as "unlimited".
Support Likely Near $4000
Despite the above risks, Garner still expects support around $4000. She believes gold’s hold of the technical trendline, coupled with recent volatility around the first-notice period for October contracts, suggests the market may have established at least a temporary bottom.
On the upside, Garner’s best-case scenario is for gold to rebound near the 200-day moving average, around $4650 per ounce; yet she views a more realistic tactical target near $4500. She said if gold rebounds to the $4500-$4600 range, she would be more willing to establish short positions there.
"I am by no means a bull," she said. "If gold really rises to $4500 to $4600, I would prefer to short from that level."
US Treasury Bonds and US Dollar Serve as Key Variables
Garner believes the catalyst for gold’s next move may come from the US Treasury market. She said after years of weakness, US bond prices may be approaching a "blow-off bottom". While she acknowledges bond market volatility may intensify further, any signs of stabilization in US bonds could create room for a gold rebound.
"As long as there is any sign of stabilization in US bonds, I think gold has a chance for a relief rally," she said. "The risk is that in this kind of blow-off volatility, there is no ceiling for chaos."
Nevertheless, Garner has not changed her bearish view on gold in the larger cycle. She believes the US Dollar is the core source of pressure over the longer term. She noted that the US Dollar tested a roughly 20-year trendline earlier this year, a level that has historically triggered sharp rebounds. She expects the US Dollar will eventually break out of the current slow recovery pattern and reapply pressure on precious metals.
"I think this will ultimately be the knockout blow for gold and silver," she said.
Copper Market Also Faces Pullback Risks
Garner holds a medium-term bearish view on copper, which is also tied to expectations of a stronger US Dollar. Although copper has become one of the most popular commodities in the artificial intelligence and electrification trades, she pointed out that copper prices are testing an important long-term technical resistance level that has triggered obvious pullbacks multiple times in the past.
She said copper prices are testing a roughly 20-year trendline for the fifth time, and sharp declines followed previous touches. While she does not believe history will repeat those extreme losses exactly, she thinks a 30% to 50% pullback in copper prices is possible.
She added that her bearish view on copper aligns with expectations of a larger upward move in the US Dollar. Garner said the market previously ignored the US Dollar because its past rebounds failed to sustain, but she believes this situation may be about to change.
"I think the US Dollar is going to start breaking some things," she said, adding that financial markets have not fully priced in the impact of a stronger US Dollar.