The US Dollar ended the week with a high of $83.055 as traders view the global growth as sluggish. The Federal Open Market Committee suggested that they may reinvest money into government debt which helped the paper assets group. They also had held to their "extended" period on the issue of policy change while not introducing any further stimulus plans. The safe-haven products had a bullish week while the E-Mini S&P 500 had declined to $1070.50 yesterday. The anticipated slowing in the US and China also had taken the Crude Oil down to $75.01 on potential slackening demand. There was a slight improvement in Consumer Sentiment, while retail sales were higher but slightly below expectations. Jobless Claims rose higher than anticipated attracting traders into the typically more flight to quality trading markets.
The US Dollar is technically bullish unless it is able to penetrate $80.45. The weekly range was $83.055 - $80.345. While the comfort area for this market may be about $82.00, it could consolidate anywhere between $83.65 - $80.50. We now see less 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 appears to be in a channel that will require some further "fear" buying to stimulate a breakout. I would prefer to get a sell-off to $1170.00 to stimulate further Asian and Indian purchases. The Indian Festival Season is August 24th through November which may stimulate further buying. We look to such countries as China and Germany for growth in their economies, when their reports come in lackluster, our recovery is also at times construed in that vain.
Where do we go from here!
The next two weeks, I expect erratic moves in the marketplace as a whole. I anticipate a further sell-off in the indices in the fourth quarter. I had hoped for a lower Gold Market to buy and position trade for a larger move up to a new high. For the moment, I would suggest "keep your powder dry" and wait for a better entry to come.
Gold
The December Gold has reached a high this week of $1219.80 and a low of $1192.50. I am in a bullish mode and look for support around $1188.00. If the $1172.00 is penetrated, 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.
