The US Dollar has fallen drastically against the Euro FX as hopes of global economic stability seems within range! The GDP came in at 2.8 % when analysts' were expecting 3.00 % today. The rebuilding of business inventories added $56.0 billion contributing 1.94 % to the GDP growth. Gross Domestic Product refers to the market value of all the final goods and services within a specified period of time. It is viewed as a reflection of the country's standard of living. The FOMC last Wednesday had adopted measures toward increased transparency by publishing the individual policymakers' forecasts for the federal funds rate. Federal Reserve Chairman Ben Bernanke had suggested further that the US central bank may consider further monetary easing. The central bank had also announced that interest rates would remain near zero until late 2014. Regarding further stimulus, many economists feel that the Fed may intervene at a later date perhaps more in the area of mortgage debt instruments. "Operation Twist" may continue so long as the Federal Reserve regards it effective. The US Dollar had fallen due to a shift in the risk assets! The US economic reports are clearly pointing to growth. The unemployment rate is now 8.5 %. The housing market is thought to have bottomed.
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. We look forward to the Euro Summit in Brussels on Monday for hopefully, a deal to perhaps evade a Greek default! Negotiations with private creditors still have not reached an accord. The agreement may be close, but many think that the actual deal may occur on Monday at the summit in Brussels. The troika of foreign lenders would then submit a report of the progress in Greece, then perhaps the $130 billion euro bailout may be dispersed. The European Union (EU), International Monetary Fund (IMF) and the European Central Bank (ECB) are in Athens discussing a supplementary budget to reach the financial goals for 2012 in Greece. There is talk of a potential default as inevitable, that if not now, then later. With this thought in mind, some leaders want to prevent any contagion by constructing a ‘firewall' around Greece. Fitch's credit rating agency had downgraded five Euro nations today such as Italy, Spain, Belgium, Slovenia and Cypress saying that they lacked flexible financing in the debt crisis. This leaves Germany with the only AAA credit rating. Previously, Standard & Poor's credit rating agency had downgraded nine nations including France and the European Financial Stability Fund (EFSF) itself. Japan has purchased $3.7 billion euros of EFSF bonds last week. Norway may be hesitant now to invest in the funds debt instruments and China may be re-evaluating its foreign investment money. Italy is considering a sale program to include state-owned utilities and property assets. Spain may also construct such a program with hotels, airport concessions, and lottery businesses. The G-20 meets in Mexico on February 25th and 26th! The sentiment of the G-20 is toward building global financial stability by raising further contributions to increase the IMF's support monies as rescue aid. Mexico, Brazil and China may be advocating further support while the US wants to see more from the Euro Zone in terms of stability and containment before any commitments. After the G-20 meeting, on March 1st and 2nd, the EU leaders may meet to discuss the European Stability Mechanism (ESM) which is deemed the permanent fund to manage the debt crisis.
The US Dollar has trended lower this week! The March US Dollar is technically in sell mode! The high this week has been $80.585 and the low $78.89. 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 up. The Exchange Traded Fund (GLD) was reported higher.
The Gold Market has separated from the risk assets it appears after the Federal Reserve revealed their eased monetary policy! The weakened US Dollar also supports the Gold market. The world's largest hedge fund, Bridgewater Associates had commented that the Gold was a hedge against inflation as more and more governments may be printing more money to control the debt crisis. The FOMC was the trigger, but money managers increased their Gold lots by 9,959 to 126,937 lots this week. Gold is an emotional market and it may lend to a surge of upside action as traders may look for the technical breakouts for their buys. We still must look for potential retracements, but we anticipate a much higher Gold market!
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 $1743.00 and a low of $1652.20. I am in buy mode until the GCJ12 should penetrate $1652.20. The current point of control or comfort zone may be $1731.80. This market may be setting up for another leg up, but must maintain levels above $1695.00. 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.
