The US Dollar has risen due to the Euro crisis and the US economic data! US Consumer Sentiment by Thomson Reuters/University of Michigan was up 74.00 from 69.9 in December for the fifth month in a row while expectations were set for 71.5. The November trade gap had widened in the US. The US Dollar is trading very strong and this is impairing US exports. The cheaper dollar makes US goods more appealing to foreign investors. Consumer spending is stable, but not really increasing. The next Fed policy meeting is slated for January 24th-25th, no changes are anticipated in monetary policy at this meeting. US economic growth is increased this week to 121.2 in the weekly index by the Economic Cycle Research Institute. Last week's reading was at 120.2. The annualized growth rate is minus 8.4 % from last week's 8.2 %. The US was downgraded from its AAA credit rating in August, but the US Dollar and the US Treasuries still hold their luster in foreign demand. The US economic reports are showing modest growth while China has slackened and Japan is still recovering from the tsunami and earthquake from last March. Standard & Poor's came out with warnings that they may soon downgrade several Euro nations including Austria and France. The potential downgrade for France is further reaching than just a country losing its AAA credit rating as the European Financial Stability Facility (EFSF) may also be downgraded also. The EFSF downgrade may impede any bailout and recovery attempts in the Euro Zone. The EFSF was set-up to manage the debt crisis by implementing bond sales. Germany was said to have been excluded from any downgrades at this time. This sort of move may make the large holders of Euro debt such as China re-evaluate its holdings. The European Central Bank (ECB) had kept their interest unchanged at 1.0 % yesterday. The ECB had issued about a half a trillion euros in cheap loans to banks in the hope of having the money reinvested in some of the debt instruments. Yesterday, it looked as though the money had not been hoarded and was applied, but today gives us further concerns. Greece was supposed to implement a bond swap to qualify for the next tranche of bailout funds. The talks between Greece and the private sector bondholders came to a halt. The European Union (EU) , International Monetary Fund (IMF) and the ECB inspectors are set to arrive in Athens on Tuesday to speak further on the $130 billion euro bailout plan, with contingencies based on the bond swap.
Iran had confirmed that it was enriching uranium inside a mountain a few days ago and since have also sentenced an American to death as an alleged spy! The sanctions that the European Union want to impose on Iran oil shipments has caused the threats from the oil producing country to possibly block the Strait of Hormuz. The foreign ministers have moved up the meeting to discuss the ban to January 23rd. Yesterday, they spoke of a potential 6-month grace period before imposing a ban. There also was a reported car bombing in Iran of a nuclear scientist that is putting the blame on Israel and/or the US. Italy, Spain and Greece import about 500,000 barrels per day from Iran out of about 600,000 barrels in total imported by the Euro Zone. These countries actually had hoped for a 12 month grace period as the price breaks and deals may be hard to replace. US officials have been traveling to China, South Korea and Japan to ask them to cut purchases. This is difficult in that a country like China is possibly the largest importer of Iran oil. China also has a great interest in the US shale fields and the Canadian oil sands. Iran is possibly offering discounts to China to barter with them, so it may be a difficult decision for the powerhouse of a nation. President Obama can block financial transactions with Iran to a certain degree, but may sign waivers to allow for countries to receive Iranian oil but only with cuts. As of late, Russia had commented that any attack on Iran would be construed as a threat to Russia. Iran seems reliant on his strong allies both China and Russia. The Iranian President has been traveling Latin American countries to infuse further ties for their allied camp. The US ally, Israel is in a vulnerable location in light of nuclear arms stemming from Iran. Israel has perhaps been spurring the US and the Euro Zone for the sanctions due to its vulnerability.
The US Dollar has trended higher this week! The March US Dollar is technically in buy mode! The high this week has been $82.045 and the low $80.735. The usual inverse relationship between the US Dollar and Gold is vague for the moment! In times of fear and uncertainty, the safe-haven vehicles may move in tandem. In times of no fear, the safe-haven vehicles may not warrant the interest of traders. 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 down. The Exchange Traded Fund (GLD) was reported lower.
The Gold Market may separate from the risk assets and with the potential turmoil in the Middle-East may in fact may reach that $2000.00 this year! It really needs to decouple with the Euro FX in order to do so. Heavy liquidation for the year's end brought the metal down to $1526.20 for 2011. Managed money decreased their exposure still yet, but perhaps with the more optimistic outlook, we can look forward to 2012 to new highs. The Asian trade, may support the market and when the specs find the Gold holding these levels - they should return as well. We need the Gold to stay above $1525.00 to keep it going! Any move below $1600.00 may make traders wary. Gold bullion in China has experienced the largest demand than in the last two years. China has become the largest gold jewelry market in the third quarter of last year out producing India. The Chinese New Year begins January 23rd perhaps slowing sales. The Indian Wedding Season resumes this weekend perhaps increasing sales. In looking at the futures chart, it is likely to see Gold heading lower in the near-term possibly to $1575.00 before it turns to try for a new high. We remain sidelined, bullish but cautious.
While reaping the rewards of being a gold trader, one must be sure to use stops and money management to stay in the game! Retracements are possible. While I remain very bullish still - use stops - live to trade another day!
GOLD
The April Gold has reached a high this last week of $1665.70 and a low of $1609.00. I am in buy mode until the GCJ12 should penetrate $1574.30. The current point of control or comfort zone may be $1642.70. This market may be setting up for another leg up, but must maintain levels above $1525.00. 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. Now we may find the market potentially could climb to $2000.00 or much higher this or next year. 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: Options may be a way of participating in the market while keeping a prescribed risk and unlimited profit potential. While it may not give you the same profit, it may allow one to stay in without being bounced out with stops.
No New potential option sample trade. 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.
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.
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A ‘'LIMIT MOVE'', IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
WHEN INVESTING IN THE PURCHASING OF OPTIONS, YOU MAY LOSE ALL OF THE MONEY YOU INVESTED.
