The US Dollar closed lower this week on sluggish recovery sentiment following our unemployment report this morning! This morning the Non-Farm Payrolls reportedly fell 131,000, while the Private Employment Sector rose 71,000 increasing 31,000 in June. This helped the safe-haven products such as T-Bonds rising to a high of 129^27, but did not bode well for our US Dollar. The US Dollar Index is at an 8 month low against the Japanese Yen. The emphasis on the Unemployment Report is scrutinized as a major component of our economic recovery and can affect any potential increases to our stimulus plans by the Federal Reserve to boost the recovery. This coming Tuesday, we look forward to the next Federal Open Market Committee Meeting.
The beginning of this week began with Construction Spending higher and Manufacturing growth slowing! US Consumer Spending and Incomes were flat in June while personal savings were reaching their highest levels this year. The Stock Indices were quite resilient in the face of our sluggish recovery. The markets seem to be attracting traders into the typically more aggressive trading markets. The US Dollar Index has fallen today to a low of $80.17. The US Dollar is technically bearish unless it is able to penetrate $81.70. The weekly range was $81.67 - $80.17. While the comfort area for this market may be about $81.70, it could consolidate anywhere down to $80.00. We now see more of an inverse relationship between the Gold Market and the US Dollar Index, but when we experience such uncertainty in the markets, the safe-haven products may move together. 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 higher. The Exchange Traded Fund (GLD) reported holdings increased.
The Gold Market had begun the week with a high of $1213.30 this last week, while extending to a low of $1176.70.
Today it was evident that funds were allocated to the US T-Bonds trading up to a high of $129^27. The interest rates, although quite low, has attracted a great deal of buying interest. Allocations of the safe-haven investor typically can be the US Dollar, T-Bonds and Gold. We will often see the wave of buying move from one investment to another as market sentiment and price action dictate.
The Gold Market has risen to a 3 week high supported by the depressing Non-Farm Payrolls report, less than stellar Consumer Spending, slow Housing and weak Retail Sales information. China also encouraged the Gold Market to the highs with its more liberal policies to help banks import and export the metal. India had some buying going into its Indian Festival. Jewelers also helped to boost the purchases in the Gold Market.
While this is positive for the Gold Market, I still consider this market vulnerable to selling interest. The volume in the month of August is slight in comparison to some other months. It would not take much to create a sell-off in this trading environment. I would be cautious, especially this coming week.
Gold
The December Gold has reached a high this week of $1213.30 and a low of $1176.70. I look for support around $1188.00. If the $1161.10 holds, this may be a reversal for Gold traders. We need this market to breach $1222.00 the get any momentum behind it. We will continue to see resistance levels to conquer such as $1270.60. This will take time. I do not anticipate hitting any highs quite yet. Seasonally, we may see more in the fall. 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. 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. 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:
No new trades! I would like to see another leg down before taking a long position in the Gold Market. We do daily short-term trades based on technical indicators.
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.
The premiums of the Gold Options may be inflated after the increased volatility and market move.
Aggressive & conservative traders may stand aside until the market has retraced..Please call for finer tuned trades daily.
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!
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.
