The Weekly Gold Digger

The Gold market has been a hedge against inflationary concerns for years.  The relationship between Gold and the US Dollar continues its inverse course.  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.  Today, the printing presses roll with a mere command from the government.  While we desire the security of the investment, one must look at our economic state as a constantly changing market.  We may be long-term bullish the Gold market, but we must remember the times when countries have dumped their gold causing prices to plummet.  The Central Bank has the power to liquidate a large holding of Gold.  Russia in the past has sold off large amounts of Gold.  As of late they have increased their production by 25% delivering to an expanding demand.  Hence, I do not believe that they will be dumping their Gold in the near future.  We also must note that countries and large traders alike may buy and sell the Gold as the value changes against their currencies.  China has been buying up a variety of resources i.e. buying grain at a low price and then re-entering it in the marketplace at a higher price.  Has the world become a vast arbitrage for large players to trade a range despite the fundamentals?  India is a major player in the Gold market.  Their Indian Wedding Season has them purchasing the metal as we would a dowry for the bride to be to bring into the marriage.  The Gold is purchased with Rupees.  The value of the Rupee against the Gold may be a deciding factor for them to enter the market.  As of late, there appears to be a relationship between the Crude Oil and the Stock Market.  While the futures contract moves in tandem, the crude oil in tankers remain subject to the lift price before the actual delivery.  The barges may be subject to hurricanes and pirates, but deliverable at the seller’s whim.

The Gold market, in my opinion, is still one of the most solid places to invest.  One must have short-term and long-term goals with their investment portfolio.  In considering Gold as a long-term investment, one should take a worst case scenario.  The leverage capabilities in futures trading works great when one is on the correct side of the market.  When adverse market conditions arise, the margins calls may be horrific.  As with all investments, diversification among a variety of products typically may endure volatile market conditions better than then one product.

Gold Chart

The Gold Market traded below $945.00 in Europe.  Technically, the support may have triggered some selling along with options liquidation and a higher US Dollar.

Technically, it is my opinion that the US Dollar Index is heading lower (USDXU9) 78.37.

The Crude Oil appears to be in a range $60.00 - $75.00.  The comfort zone or point of control appears to be (ECLU9)  $67.50

The CME Group announced that they 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.

Trade Suggestions

The Gold Market may continue higher once breaking through the (EGCZ9) $960.00 resistance.  It is my opinion that one may buy Gold at (EGCZ9) $933.00 with a $916.00 Stop.  The risk would be $1700.00 approximately on a big contract or $510.00 approximately on a small Gold contract.

Another suggestion for bullish Gold traders would be to possibly look at a Bull Call Spread:  Sample of a spread:

December Gold (118 days until expiration) 11/23/2009

Buy GCZ9 950 Call and Sell GCZ9 1000 Call for approximately $1200.00.  Risk is approximately $1200.00.

Profit Potential approximately $5000.00

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.

Contact Me

Please call or email me for the complete recommendation to coincide with your risk tolerance, so that we may apply the correct Money Management.  The Weekly Gold Digger is a Free Weekly subscription to receive trading opportunities by email along with fundamental commentary and basic technical points of interest.

Take a close look and feel free to call in and talk to me in greater detail.  It would be my pleasure.  Good trading!

Call me at (877) 224-1952 or email me at lburton@danielstrading.com

Risk Disclosure

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.  Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service.  Daniels Trading does not guarantee or verify any performance claims made by such systems or services.

Past performance is not necessarily indicative of future performance.  The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.