The Weekly Gold Digger
Source: Inside Futures, Leslie Burton (2/2/09)
"Is it possible for the central banks, including China, to change to gold from its dollar holdings?"
If the U.S. Dollar Index breaks through 86.90, I believe that it may find more support to climb higher to possibly 88.77. In my opinion, the weaker stock market has contributed to the move in the Gold Market. I believe exchange traded funds (ETFs) in gold have been a major factor in supporting the Gold Market. SPDR Gold Trust Holdings have shown increased participation. Gold has been raised in value 17% since October making it one of commodities brightest.
The banking sector has caused great concern. The investment community today is risk adverse with a need for transparency in their investment products, in my opinion. I believe that the attraction to gold as a safe-haven investment is still intact.
Today, we are seeing a gold rally that may lead to further participation. Traders that wish to enter on the long side of the market may wish to enter on a pullback to $850. After today's substantial move to $931.30 upon the writing of this report, it may pull back to fill in on Monday. Healthy retracements may often provide more support to the market while allowing new entries.
Follow-through buying may take the Gold Market to $940. If $940 is penetrated, I am looking possibly for $1000. Given the volatility of the Gold Market, stops placed too close to entry levels will be vulnerable to election. To manage the risk without a stop loss, a trader may use a Call Option/Bull Call Spreads to limit their exposure.
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.
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.