The US Dollar Index reached a high today of $83.43 as investors sought the safe-haven products in light of some less attractive economic reports.  Housing starts rose 1.7 % to a seasonally adjusted annual rate of 546,000 units, less than the forecasted 560,000 units.  New building permits dropped 3.1 % the lowest level since May 2009.  The Initial Jobless Claims had climbed to a nine-month high this last week increasing 12,000 to 500,000 claims filed.  The Philadelphia Federal Reserve Bank reported their business activity index dropped to -7.7, reflecting shipments and new orders declined.   The news only aided the equity bears, creating a drop in the E-Mini S&P 500 to $1061.75.  Investor money had been allocated to US T-Bonds and US Dollars along with the Gold Market.  Weakness in the Euro-Zone had put the Euro Currency back in sell mode.  The ECB seems to be extending their lending liquidity to banks suggesting that the Euro is still weak. 

The US Dollar ended the week with a high of $83.43 as traders view the global growth as sluggish.   The US Dollar is technically bullish unless it is able to penetrate $81.44.  The weekly range was $83.43 - $82.095.  While the comfort area for this market may be about $82.00, it could consolidate anywhere between $84.00 - $81.50.  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 SPDR  Gold Shares (GLD) holdings of Hedge fund managers showed Paulson & Company unchanged.  Eton Park Capital Management, Omega Advisors and Balyasny Asset Management were up while Soros Fund Management had decreased.

The Gold Market still appears to be in a channel that will require some further "fear" buying to stimulate a breakout or a drop to  $1170.00 to stimulate further Asian and Indian purchases.  The Indian Festival Season is August 24th through November which has stimulated further buying.  The channel appears to be $1201.00 - $1243.00.  If we fail to breach the upside of the channel, the market could turn down initiating sell orders and stops.  This could be quite healthy as Gold under $1200.00 has a greater appeal.      

Next week we will look to the Initial Jobless Claims on Thursday and the GDP on Friday to give us further direction on the stock market and the course for Gold.  We need Gold to break out through $1243.00 or to break to ($1197.00-$1170.00) to get any momentum to move this market to new highs.

Gold

The December Gold has reached a high this week of $1239.50 and a low of $1216.20.  I am in a bullish mode and look for support around $1188.00 to buy this market.  We need this market to breach $1243.00 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.

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. 

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.