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.

While the US Dollar has traded lower today in light of flight to quality selling, I anticipate a potential move to $77.58.  The inverse relationship between the US Dollar and the Gold market is still intact.  The Euro FX seems to move in tandem with the Gold Market allowing some of the Euro economic news to support the Gold.

While the positive Home Sales report of up 7.2 % supported the Stock Market somewhat, the Cash for Clunkers program comes to an end Monday, August 24th at 8 p.m. EST.  This may thwart the demand outlook for Crude Oil.  Crude Oil has been moving with the Stock Market as of late.  These factors could weight on the Gold Market.

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.

Gold Chart

The Gold Market seems to be consolidating in the $940.00 - $975.00 range.  It is my opinion that the volume is still quite thin during the month of August.  In September, I expect the bigger players to come into the market.  Until then, I expect the market to range trade offering smaller profits and shorter time frames.  It is still my thought that before the Gold Market really takes off, it may suffer a liquidation to take out the longs.  This is what I will look for as an opportunity to enter for a longer time frame.

While jewelry demand does not appear to be a supportive factor to the Gold Market, it is my opinion that the Gold Market may seek its direction from the paper assets inversely, by the movement in the Crude Oil and other tangible markets.  To the large players and those that may be looking to purchase the metal for Indian Wedding Season for example, $930.00 may have more appeal.

For those of you following last weeks Trade Recommendations:  Please call in for a personal consultation to cover those positions.

New Potential Trades and Trade Follow-up

It was suggested:

Aggressive traders may look to Buy December Gold (EGCZ9) at $940.00 or better.  Please be prepared for a potential move to $917.80.  Hence; your stop/loss would be at $917.80.

For those aggressive traders that may have taken the long December Gold position at $940.00, I am suggesting that you take profits at $956.00 or better to add approximately $1600.00 to your account.  (Less commissions and fees).

For those aggressive traders that are looking for an entry, I am recommending a new entry based on the market retracing lower in the week ahead.

Buy December Gold (EGCZ9) at $940.00 or better.  Again, please be prepared for a potential move to $925.20.  Hence, place your sell stop at $925.20.  The risk would be $1480.00

(Plus commissions and fees).

Conservative traders may stand aside until the market has taken out some of the longs and has better volume.

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

December Gold (expiration 11/23/2009)

Buy GCZ9 950 Call and Sell GCZ9 1000 Call for approximately $1850.00 or better.

Risk is approximately $1850.00.

Profit Potential approximately $5000.00

(Less premium, commissions and fees).

The options spread is a long term trade that may not move significantly during the range traded time frames. 

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.

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.