The US Dollar had fallen due to a shift in the risk assets! The US economic reports are clearly pointing to growth. The US Initial Jobless Claims fell by 50,000 to 352,000! The unemployment rate is now 8.5 %. The housing market is thought to have bottomed. US home sales were reported by the National Association of Realtors as increasing by 5 % to an annual rate of 4.61 million units. This is an eleven month high for the market, with fewer properties listed, but below economist's expectations. There are still a multitude of foreclosed homes on the market. One state had been bulldozing some of the foreclosures to preserve neighborhoods from plummeting home prices. Winter usually does show a leaner inventory of homes on the market. Yesterday, housing starts were down 4.1 % to a seasonally adjusted 657,000 units in December. Single family starts was up 4.4 % adding to the sentiment that the housing market may have bottomed and the sector may actually contribute to the economic growth in the US for 2012. Housing permits for new construction dropped 0.1 % to an annual rate of 679,000 units. Earnings have been mixed, but he S&P 500 is made up of 51 companies, of which 33 posted better-than-forecasted per-share earnings.
Last month the European Central Bank (ECB) had outlaid about a half trillion euros in cheap three-year loans to banks in the hopes of creating liquidity and boosting the debt sales of some of the indebted countries. At first there were concerns that the money may be hoarded by the banks leaving the debt auctions without demand. So far, one would have to look at the move with optimism. Spain sold $6.61 billion euros worth of bonds at auction, above their intended objective. This completes 19 % of the funding required for 2012 by Madrid. They had been downgraded two notches by Standard & Poor's credit rating agency France sold $9.5 billion euros worth at lower yields than previous auctions after the credit rating agency, Standard & Poor's downgraded the country. The International Monetary Fund (IMF) is expected to increase its funding capabilities to $1 trillion, therefore working to raise $600 billion through new resources. Italy and Britain has sought the aid of the European Union (EU) in the hopes of increasing economic growth and easing some of the austerity measures that have stifled growth. Portugal increased optimism on the recovery of the country and its $78 billion euro bailout facilitated by the International Monetary Fund (IMF) and the European Union (EU) as it sold $2.5 billion euros worth of treasury bills showing demand by foreign investors. Greece and the private bondholders seem to be reaching an accord so far on a bond swap deal which will enable Greece to qualify for the next round of bailout money which is badly needed
The US Dollar has trended lower this week! The March US Dollar is technically in sell mode! The high this week has been $81.965 and the low $80.185. 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 higher.
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. The specs increased their holdings by 6,478 contracts to 116,978 this week boosting the optimism toward the risk assets! The Asian trade, may support the market as bargain hunters had spurred buying just prior to the Chinese New Year that starts Monday. India may have also begun to purchase gold again as they are in a festival season. The European Central Bank may find itself printing more paper, any time the paper increases, it may increase the prices of Gold. We would like to see Gold hold $1600.00 to resume its move, but a temporary retracement could take it down almost to that level. Long-term, we remain bullish, but need to see the Euro Zone maintain the stable outlook in order to decrease the volatility.
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 $1673.30 and a low of $1635.80. I am in buy mode until the GCJ12 should penetrate $1618.10. The current point of control or comfort zone may be $1661.80. This market may be setting up for another leg up, but must maintain levels above $1600.00. 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.
