Saturday, May 20, 2006

A traders market in Gold

What do you buy, if you don't like the USD for political reasons, but don't want the Euro fearing repercussions. Yen? I don't think so. Gold might be a good alternative Middle Eastern Central Banks can diversify in, if they fear their US or UK accounts might get frozen in the future by some UN-Resolution.
First thing I do when reading some Iran news, is looking at Gold and Oil prices. Did they react? Yes, then it might be something behind the worrisome news I just read, if not, well it's nothing and I disregard it.
I don't see Gold going down a lot as long as Iran is playing around with nuclear power, as long as Iraq is on the brink of civil war (actually it already has broken out, just nobody calls it so) and there is no alternative fuel source available, which can easily replace the middle eastern oil and our dependency from it.
Sure, Gold has been going up too far too fast in a very short amount of time. And it might become a traders market for a few months consolidating this huge move up. But what the heck, if there is something moving 200 ticks a day up or down or even going both ways within one day, I trade it. You can learn great lessons trading gold instead of investing in it:
1. Keep your stops and NEVER, EVER dream of moving them against your position
2. Never add to a losing trade
3. Use Reverse Market Stops, as the swings in Gold are so big, that in Gold you usually can make your stop easily back, if your Stop is not too far away
4. Add to a winning trade, as a move can easily go 5 to 7 points (or 50 to 70 ticks)
I trade ZG, which is 10$/tick, but there is also a very liquid mini contract (YG) both traded electronically on ECBOT. Current front month is still ZG M6. But watch for rollover end of month if you trade the futures, as it does not follow the quarterly cycle the US index futures do.