The US Dollar has benefited from the Euro crisis and the US jobs data! US Unemployment Report exceeded the 150,000 in expectations to 200,000! This brings the unemployment rate to 8.5 % from 8.7 %. It was perhaps buoyed by construction and courier jobs. Transport and warehousing added 50,000 jobs, while manufacturing added 23,000 jobs and retail added 28,000. Construction jobs were increased by 17,000. Temporary jobs actually fell by 7,500 in December. The hourly earnings only increased by four cents indicating that the jobs added may be lower paying. This aspect of the jobs data may affect Monday's US Consumer Credit which is forecast at $7.00 billion. Even as the US economy is showing modest growth and recovery, the possibility of another round of stimulus from the Fed is still viable. The housing sector has been a lagging area affecting both the economy and the banking sector. Any potential QE3 for 2012 would not be surprising! The next Fed policy meeting is slated for January 24-25th.
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. The Euro Zone has avoided any major defaults so far, but the worst may be yet to come. The credit rating agencies such as Standard & Poor's has threatened to possibly downgrade 15 of 17 European nations and the European Financial Stability Facility (EFSF). Euro leaders resurrected the European Stability Mechanism (ESM) to act as the permanent fund to manage the debt crisis. It is thought that potentially the downgrades could happen in January. It is also thought that the Euro Zone has a large refinance plan in store for January. The Euro banks have until January 20th to come up with $115 billion euros to balance the books from their debt crisis. The Italian and Spanish bond auctions slated for Thursday and Friday may be vital to the Euro Zone. The European Central Bank (ECB) had issued cheap loans to stimulate activity, but the money is thought to be hoarded by the banks or deposited bank to the ECB overnight instead of being used to loan to each other or purchase the debt instruments. Speculators are thought to have increased their net shorts on the Euro FX by 138,909 from 127,879 last week. Iran has threatened to block the Strait of Hormuz in retaliation for sanctions from the European Union and supported by the US. The majority of countries are unified in this move, willing to sign waivers to cut down on the importation of the Iran oil. China has proceeded with barter plans, while Russia opposes the sanctions. The US has a strong military presence in the Gulf, but still respects the bluster as Iran announced potential military exercises in the Gulf. The International Energy Agency (IEA) is devising back up plans in lieu of a potential disruption of oil transport in the shipping lane.
The US Dollar has trended higher this week as we come to the year's end! The March US Dollar is technically in buy mode! The high this week has been $81.72 and the low $79.83. 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! Heavy liquidation for the year's end brought the metal down to $1526.20 last week. 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!
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 $1634.40 and a low of $1572.30. I am in buy mode until the GCJ11 should penetrate $1532.10. The current point of control or comfort zone may be $1622.20. 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.
New potential option sample trade. The option lost money!
Buy the December Gold 2000 Call for 5.70 ($570.00) less fees and commissions. The expiration is November 22nd. The risk is ($570.00) less fees and commissions. The profit potential is unlimited.
New Sample Option Trade! Our target for the trade is GCZ11 at $2000.00 to take profits!
December Gold Bull Call Spread!
Buy GCZ11 1950 Call ($82.00) and simultaneously Sell GCZ11 2000 Call ($66.60).
The risk on the trade would be about $1,540.00 plus fees and commissions.
The profit potential on the trade would be about $3,460.00 less fees and commissions.
The Expiration would be 11/22/2011.
I will not be able to exact the precise turnaround of this market, but believe this could be an opportunity to buy lower.
Previous Sample Option Trade: out of the trade 8/23/2011
The option is trading at about $15,000.00 now. If you are in this trade, please take profits.
Buy GCZ11 1800 Call at 18.00. The risk on this trade would be $1800.00 plus fees and commissions. The expiration is 11/22/2011.
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.
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.
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.
