The GDP came in slightly better than expected + 1.9 %. The Advanced Durable Goods rose more than analysts had expected at 1.9 %. FOMC was a bit discouraging as Federal Chairman Ben Bernanke recapped how our recovery is sluggish. No mention of further stimulus was mentioned as the QE2 finishes on June 30th. The shocker was President Obama releasing 60 million barrels of oil from the strategic reserve. This was stimulus as the growth of the country seemed capped by potential inflation fears and very real high energy costs cutting into production gains. Companies had to determine if they could provide their goods and services with the high energy costs and make money. The Crude Oil initially had a $4.00 drop. While a productive move, it threw a few of the other market off a bit.
The September US Dollar is technically in buy mode! The high last week had been $76.28 and the low $74.865. The usual inverse relationship between the US Dollar and Gold is on for the moment! In times of fear and uncertainty, the safe-haven vehicles may move in tandem. In times of no fear, the safe-haven vehicles may not warrant the interest of traders. The ICE Futures U.S. Dollar Index (USDX®), is the international value of the US dollar and the world's most widely-recognized, publicly-traded currency index. By using the Dollar Index, traders can take advantage of moves in the value of the US dollar relative to a basket of world currencies or can hedge their portfolio of assets against the risk of a move in the US dollar in a single transaction. US Dollar Index futures are traded for 22 hours a day on the electronic trading platform of the Intercontinental Exchange (ICE).
Why am I elaborating on the US Dollar as a Gold Trader? While the US Dollar remains weighted against the six major currencies, Gold may be boosted by a variety of factors: It is purchased as a safe-haven by investors shifting from low interest bearing government bonds and other products that cannot keep up with the rate of inflation. The Gold may be traded in physical bullion, ETF's, XAU, Spider Gold Trust and futures contracts to name a few. Typically, in years past, the currency of a country could be backed by physical gold. The XAU has traded lower. The Exchange Traded Fund (GLD) was reported down.
The Gold Market has taken a severe drop causing some technical damage to the Daily Chart. The allocations had fled to the US Dollar as the Euro Zone has met their debt problems with little resolve. As they create one bailout, it is like another bailout request may be just around the corner. The precious metals have suffered as hedge fund managers meeting in Monaco had discussed the investment community steering clear of the risk in commodity futures. While their concerns are valid, the low returns on other products may be less than desirable in the future. Managed Money seemed to increase their allocations in Gold this week. An increase in Gold of 22,681 net long positions for the Managed Futures sector. India is in their monsoon season June through September. This is the time that the money from crops such as corn, sugar cane and rice may determine their disposable income. They typically will buy Gold with their disposable income.
While reaping the rewards of being a gold trader, one must be sure to use stops and money management to stay in the game! Retracements are possible. While I remain very bullish still - use stops - live to trade another day!
The August Gold has reached a high this last week of $1559.30 and a low of $1498.50. I am in a temporary bearish mode until the GCQ11 should penetrate $1559.30. The current point of control or comfort zone may be $1540.00. We have rolled to the August Gold! This market is coiling and may break out soon! Those who hold long positions may want to trail stops to protect any accumulated profits or prevent losses.
While I am long term bullish this market, it is essential to have a trading plan with worst-case scenarios in mind. Once you accept the risk of the trade, then all you need do is follow the plan. Intra-day trading, we do bracket our trades with precise stops. The use of stops, while prohibitive may allow an account take smaller losses during some very large market moves. To live to trade another day! The use of options with futures positions and/or option strategies may again keep the risk at a specific level. Now we may find the market potentially could climb to $1596.00 or much higher this or next year. Some analysts are forecasting $2000.00. Gold is still a Safe-Haven market that seems to hold value during most economic conditions.
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New Potential Trades and Trade Follow-up:
I will not be able to exact the precise turnaround of this market, but believe this could be an opportunity to buy lower.
Sample Option Trade:
The option is trading a tad lower, but still looks like a viable trade. Trading at about $ 700.00 now.
Buy GCZ11 1800 Call at 18.00. The risk on this trade would be $1800.00 plus fees and commissions. The expiration is 11/22/2011.
The CME Group announced that they are introducing Mini Gold Kilogram contracts to meet the increased interest of investors. The smaller contracts may allow investors to participate in the Gold Market with less margin.
Due to the fluctuations in this market, please consult with your broker, or call us to strategize a risk management plan in line with your personal risk tolerance. Traders that wish to participate in the Gold Futures Markets may look at the E-Mini Gold contracts which have a lower margin requirement than that of the larger Gold contract. Please look for current margins before entering this market and be sure to allow cash cushion for any adverse conditions. Please consult with your broker to calculate the risk, stop loss orders or option strategies before entering such a volatile market. Investors that wish to take a position in the Gold Futures market should devise a plan according to their goals, risk tolerance and the amount of money they are willing to risk in this sector. Like many other investments, the success of the trading plan must take into consideration the timing of the entries and exits.
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Take a close look and feel free to call in and talk to me in greater detail. It would be my pleasure. Good trading!
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