With President Obama elected to another term in yesterday’s election, investors turn their attention and focus on economic data at home and abroad. European issues still weigh on investor’s minds with focus back onto the Greek debt crisis.
The fiscal cliff and the end of the Bush era tax cuts along with tough budgetary decisions await the President and Congress before years end. After Friday’s two percent drop in the Gold price to lows just above the 200 day moving average, Gold has taken off back to the upside , recouping that loss while posting a two week high earlier this morning. Much of the rally so far this week was made on Election Day, with election results providing an exclamation point for the Gold Bugs, in that dips in the market shall be buying opportunities going forward in the near future.
The question is why? Investor sentiment seems to be that an Obama election ensures Bernanke reign at the Fed will not end any time soon. Therefore easing or dovish policies will remain in place for the foreseeable future, with bond buying continuing to be the norm rather than the exception. Bond buying or added stimulus will keep the printing presses at the Treasury busy throughout the holiday season and into the first quarter of next year. Let’s be clear, any time you print more of something it becomes worthless.
A weak Dollar artificially creates an inflationary market where Gold among other commodities will probably be an investment of choice and safe haven for investors. To determine where a market is going, a wise investor needs to know where it’s been. When President Obama took office on January 20th, 2009 Gold settled at $887.50. Gold settled yesterday at 1715.0 an ounce. Almost double in price. Continued stimulus efforts from Uncle Sam and the Fed have contributed through the upward movement in price.
Unless we see a major correction in the stock prices, I think dips will continue to be bought in the Gold market. Those who followed my trade recommendation last week to buy the Feb Gold 1775 call and sell the Feb Gold 1800 call for 5 points, have a 2.5 point lead on the trade as of this morning.
Remember this is a conservative strategy where we are positioning ourselves to be long the Gold market using out of the money option spreads. The risk for the trader is the cost paid for the spread plus commissions.
As of last night’s results, I am looking at the same philosophy of getting long the market on a dip. If we can get a pullback to let’s say 1700 on the February futures. I would be looking to buy the 1800 Feb Gold call and selling the 1825 call for 4.0 points or a 400.00 risk per spread. Max profit on the trade is $2,500.00 minus commissions and fees. I also have more strategies on a day trade or more aggressive basis, and would encourage anyone to contact me at any time to discuss.
RISK DISCLAIMER: There is a significant risk of loss in trading commodities. Past performance is not necessarily indicative of future results. Only risk capital should be used. Losses from commodity investments may be greater than the initial investment(s). Commodity trading is not appropriate for all investors, and a commodity investment must be evaluated in light of the potential for risk of loss as well as the possibility of profit. Please contact your account representative for more information on these risks.
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