The US Dollar was in a downtrend until today! Yesterday, Greek Finance Minister Evangelos Venizelos announced that Greece had a staff level agreement with the troika for a new, strong and credible program. He also said that an accord had been reached with the private creditors on the private bondholder losses. Today, George Karatzaferis, party leader said that he would not support the austerity measures necessary for the bailout rescue. Further, Chairman Jean-Claude Juncker stated that $325 million euros of spending cuts were necessary in addition to the reforms already proposed. The EU officials had said that the full package of both conditions and funds must be agreed upon by February 15th in order to go through the legal channels and obtain parliamentary approval to acquire the bailout money. The bond redemption of $14.5 billion euros is for March 20th and in order not to default, the money must be in place. The CBOE Volatility index (VIX) increased 11.6 %, showing the fear and anxiety in the marketplace. . The US Thomson Reuters/University of Michigan index of consumer sentiment dropped to 72.5 early February from 75 in January. While the unemployment rate had dropped to 8.3 % and employers added 243,000 workers in January, the payroll is still keeping household budgets tight. The average investor may have money accumulated in cash more than in risk assets at this time. The US trade deficit has increased to $48.8 billion in December. US exports increased last year by 14.5 % to $2.1 trillion, but imports increased 13.8 % to $2.7 trillion. US exports to China increased 13.1 % to $103.9 billion, but imports from China increased 9.4 % to $399.3 billion. The deficit with China increased to $295.5 billion leaving US officials to contemplate the trade balance with the undervalued Yuan. The Senate last year tried to pass legislation to press China to increase the value of their Yuan, but it was voted down. The cheaper currency makes goods and services more appealing in the global marketplace. Next week a meeting is scheduled between US President Barack Obama and China's Vice President Xi Jinping to discuss trade practices.
The March US Dollar is technically in sell mode! The high this week has been $79.645 and the low $78.43. The usual inverse relationship between the US Dollar and Gold is intact 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 has come off the highs of last week perhaps due to the weak Euro! The Greek dilemma has put many investors in cash. Billionaire Warren Buffet had recently declared the bonds were the "most dangerous of assets"! Investment publisher of the "Gartman Letter", Dennis Gartman is bullish on Gold after being more of a seller last year. The volatility of Gold has dropped allowing the COMEX Exchange to reduce margins giving a wider range of traders access. Gold speculators increased their positioning last week by 13,662 to 173,172 contracts widening their exposure. There is a strong underlying bullish sentiment on Gold, but as with all things, traders may be looking to bottom fish. The $1698 - $1680 range may be the sweet spot for the Gold bugs.
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 $1755.50 and a low of $1706.40. I am in sell mode until the GCJ12 should penetrate $1759.80. The current point of control or comfort zone may be $1723.10. This market may be setting up for another leg up, but must maintain levels above $1680.00. 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.
