The US Dollar traded lower on the day forming a mini pennant pattern.  Federal Reserve Chairman Ben Bernanke commented that the extended period would last for some time without a policy change on interest rates.  The key factors that impact our markets are:   The unemployment within the US and just how our government may spur new hiring and new jobs.  Global Debt such as Greece and how the action taken to resolve the crisis will affect the global marketplace.   Other significant factors may come from India issuing increased custom duties on precious metals.  This should affect the Gold Market as India is a major import country for Gold.  They are supporting the  refinery trade within India by lowering the duty.   The China trade seems to not want to reveal any of their potential strategic plans regarding the Gold Market.  There was a story released and then marked not authorized regarding their potential purchases from the IMF.   The inverse relationship between the US Dollar Index and the Gold Market has waned this week.    The uncertainty of the markets has perhaps contributed to the separation.  The target for the US Dollar now is taken to $79.95 in the near-term.   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 traded a bit higher. The Exchange Traded Fund (GLD) reported holdings are up from the previous session.   The risk appetite of the investor is definitely a factor at this point.  Despite all of the mixed news and sentiment, I believe the Gold Market should rally on our return to trading on Monday.   The Gold Market has remained resilient through the economic climate. 

Gold

The April Gold has consolidated on the highs this week with a potential break-out feasible.  My hard support of $1028.00 is unscathed.  If the market can break out of $1122.00, I would look for a move back to the old highs.  My next level of resistance $1142.00.  While next week may lead to temporary retracements in the Gold market, long term views of the Gold may be optimistic.  Small traders should be sure to follow their trading plan with a distinct plan with risk parameters set to their risk tolerance.  The use of stops, while prohibitive may allow an account take smaller losses during some very large market moves.  The use of options with futures positions and/or option strategies may again keep the risk at a specific level.  While I am cautionary during these economic conditions, my long-term objective on the Gold Market into 2010 was $1365.55 or higher prior to the new tax on import rule from India.  Now we may find the market potentially could climb to $1326.00.  Typically, I look for highs to be achieved in March of 2010 and/or potentially July 2010.   

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

For those traders that wish to participate in the Gold Market with a defined risk.  An options strategy would potentially work better than a futures position.  The Buyer of an option pays a premium for the option, which is a right to a long (Call) or short (Put) position in the futures market at their selected strike price.

 Example:

Follow through on existing trade: 

The option value has decreased to approximately $200.00 for those that would like to enter the market.  The premium decay is to be expected.  The trade may potentially come back to meet the target premium of $1000.00.  The faults of the option buying strategy are many:  The timing must be almost perfect.  The market adverse movements may severely damage the premium value of the option.  They do in most cases expire worthless.  The benefits are small:  You, as an option buyer have only the risk of the initial purchase of the option plus commissions and fees.  This is defined (No margin calls!) 

We hold for a more opportune exit on the strategy!

We have been up on the week on the premium of the Gold Option Trade from 1-29-2010, but have not met our first target for traders that wish to double the amount of their investment.   We stay with the trade until our Sell target of the $1000.00 value of the option is met.  Traders looking for an entry on the futures would do best to call us in these volatile conditions.  The placement of stops and targets must be very carefully planned.

This position filled and is still in range for those who wish to enter the gold market without a margin requirement.  The purchase of an option limits one to the premium or cost of the option with commissions and fees without being subject to margins calls. 

For those in the position:  One may put in an order GTC to Sell the GCJ10 @ 10.00 or wait to see how the trade shapes up before determining a profit target or a stop loss.   

Trade from 1-29-2010. 

Buy GCJ10 1200 Call at 5.00 or better (Limit).  The risk would be $500.00 plus commission and fees.  The profit potential is unlimited.   The expiration of the option is March 25th 2010.

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

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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.