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Gold futures on the COMEX Division of the New York Mercantile Exchange settled at a record closing price of 1,416.1 U.S. dollars per ounce on Monday, underpinned by overwhelming concerns over U.S. economic recovery and sovereign debt crisis in the Europe.
Traders noted that the market continued to gain strength from higher-than-expected unemployment data in the U.S. The Fed Chairman Bernanke recently said in an interview that the country's unemployment may take five years to fall to a normal level.
GC Z0 Currently trading around the 1422 mark.
US Dollar Fuelling Gold
“With the US dollar index continuing its decline a near term ease may me imminent, however mid to long term indicators point to a continual decline in the US Dollar. Gold seen as a safe haven will continue to rise inversely to the decline of the US Dollar index and as such provides great opportunity for a Bought Call Spread both in December and February. Massive fiscal and monetary stimulus has weakened the dollar, whose current resurgence stem mainly from the European debt crisis. Once that crisis rears its head in the debt-burdened United States, the dollar's weakness as a currency will be evident to all, and its role as the world's reserve currency will be in jeopardy. Historically low U.S. interest rates, U.S. dollar weakness, and the longer-term inflationary pressures of the Federal Reserve throwing trillions of dollars at the U.S. economy make the environment favourable for gold and other tangible assets.”
Supply
If the market doesn't like the money that's coming out of governments, they're going to move to other alternatives and the natural place they will move to is gold. There is an infinite amount of US currency that can be printed however there is only a limited Supply of Gold in the world.
Demand
The Federal Reserve has kept U.S. interest rates at virtually zero, with no sign of a hike on the horizon, thereby lowering the opportunity cost of buying gold. As the public loses faith in debased paper currencies, the ‘dash’ for gold will increase exponentially. Also fuelling demand are the world's central banks, which in a major trend reversal have now become net buyers of gold instead of sellers.
All of the above was written on the 5th October 2010 and has yielded true thus far.
LONG FEB/11 GOLD CALL Spread:
5th October 2010 – Trade placed
BUY 1 x FEB /11 GCG1 1350 CALLS @ Spread (settled @ 43.10)
SELL 1 x FEB /11 GCG1 1400 CALLS @ Spread (settled @ 27.80) = Total Spread pts: 15.3 (ie 1pt = $100US)
7th Decemeber 2011 – Trade Update
BUY 1 x FEB /11 GCG1 1350 CALLS @ Spread (settled @80.90)
SELL 1 x FEB /11 GCG1 1400 CALLS @ Spread (settled @ 47.90) = Total Spread pts: 33 (ie 1pt = $100US)
ð Max profit potential $ 3,470 USD (If market closes above 1400 come 21st January 2011)
ð Potential Loss $ 1,530 USD (Amount outlaid to buy spread)
ð Some clients are taking profit at current market levels at 1421 GC G1 (Feb Gold) yielding a profit of 33 – 15.3 = 17.7points. (ie $1,770 USD Clear profit as of today)
ð Alternatively we are still bullish on Gold and are happy to hold this position in order to realise a greater profit into January 2011.
LONG DEC/10 GOLD CALL Spread:
BUY 1 x DEC /10 GCZ0 1350 CALLS @ Spread (settled @ 19)
SELL 1 x DEC /10 GCZ0 1400 CALLS @ Spread (settled @ 7.7) = Total Spread pts: 11.3 (ie 1pt = $100US)
ð Max profit potential $ 3,870 USD (If market closes above 1400)
ð Potential Loss $ 1,130 USD (Amount outlaid to buy spread)
ð Max Profit taken at 1386 GC Z0 (Dec Gold) – 1350 (Bought Call) = 36 points difference.
ð 36 points – 11.3 points outlaid to enter trade = 24.7 points (1 point = $100 USD)
ð Therefore clear profit of $2,470 USD (on 1 lot) was realised minus commissions @1386 GC Z0 (Dec Gold).
Exchange rate: AUDUSD - 0.9878 (07/12/2010 - 11:44am)
* Chart Gold Source: eBridge Trader
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