The US Dollar traded lower to $82.39 today! A week of Home Sales, Initial Jobless Claims and Euro-Zone Stress Tests has led to uncertainty in the marketplace. Federal Reserve Chairman Ben Bernanke claimed that the US economy faces "unusually uncertain" prospects. While I attempt to remember when I had felt certain about anything in the marketplace. The Euro rose after German Business Sentiment rose to the highest level in 3 years. Only 7 of the 91 European Banks were reported to have failed the stress tests. The Euro has held up remarkably well for the eyes of the global economy have been on the Euro Zone recapping the play by play with each country, each bond auction and the trek of the recovery. This brings us to a new area of potential influx of traders into the currencies such as the Canadian Dollar. The stable and resilient currencies usually getting less attention than the Euro Currency and the US Dollar Index.
Existing Home Sales fell less sharply than we anticipated but lower than last month. The Initial Jobless Claims were higher last week up 37,000 to 464,000 claims filed. Despite all of the economic doom and gloom, our stock indices held some strength. The S&P 500 E-Mini closed today at $1101.00 up $13.25.
The US Dollar Index is still in a sell mode hitting a low today of $82.39. The high of the week was $83.64 and the low $82.355. $82.00 is still my target, but it may extend through it. A bounce would be healthy for the US Dollar as it has sold off from $89.33 in June. Any move over $84.00 may be a trend change.
We usually see an inverse relationship between the Gold Market and the US Dollar Index, but when we experience such uncertainty in the markets, the safe-haven products may move together. 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 lower. The Exchange Traded Fund (GLD) reported holdings dropped.
The Gold Market has risen to a high of $1203.90 this last week, while coming off of a low of $1175.10.
Global Commodity Assets under management had risen to $292 Billion in June from $291 Billion in May as reported by Barclays service. While reviewing the CFTC Committment of Traders Report, I noticed the large quantity of longs held by such Managed Accounts as the COT breaks down the categories of longs vs. shorts.
I found that Bernanke's remark as cited above did little to spark interest in safe-haven products that I could see. What I had been concerned about were the foreign jewelers and countries that typically store gold as currency and a safe-haven vehicle. At $1175.10, there was supportive buying from these sources. As long as the market can stimulate buying under $1200.00, the market may be poised to move higher.
Gold
The August Gold has reached a high this week of $1203.90 and a low of $1175.10. I look for support around $1175.00. If this support is taken out, we may find the Gold Market trading $1158.20. If the $1175.00 holds, this may be a reversal for Gold traders. I now am in buy mode unless the $1175.10 is taken out. We need this market to breach $1220.00 the get any momentum behind it. We will continue to see resistance levels to conquer such as $1250.00. This will take time. I do not anticipate hitting any highs quite yet. Seasonally, we may see more in the fall. 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. While I am cautionary during these economic conditions, my long-term objective on the Gold Market into 2010 was $1365.55 or higher prior to the new tax on import rule from India. Now we may find the market potentially could climb to $1326.00. Gold is still a Safe-Haven market that seems to hold value during most economic conditions.
