So Whats the deal with Gold lately? Gold has been in a channel for almost 2 years now since May 2011 between 1550-1800.
In the shorter term Gold has been on a downtrend and has been selling off from the top of the channel at about 1755 and encountered an intraday low of 1539.7 on Thursday. Some of what accelerated losses below the $1600 level were comments from a FED official that QE could end as soon as this summer if Labor conditions continued to prove at the current pace.
1. Case for going long Gold
a.) Technical Case- As explained above we are very close to the bottom of the 2 year channel and have a very strong pyschological support level of 1550 to place stops below and target the top of the channel at around 1800. After todays NFP report Gold seems to be stabilizing at this support level and has bounced back to 1574 and has failed to close on the Daily chart below 1550. Gold is also preceded by a strong uptrend which leads me to believe we may possibly still be in a continuation channeling pattern.
b.) Fundamental Case- As explained above, the accelerated sell off below 1600 was caused by comments by a FED official saying that if labor conditions continued to improve at the current rate that QE could end. Todays weak NFP report as well as this weeks unemployment claims, uptick in the unemployment rate, and weak ADP report most likely mean that QE will at least not end any time this summer as was hinted by the FED official.
In addition we also now have Japan introducing a monumental QE program and printing, The ECB President hinted that further QE was likely to come this week, and it appears that the U.S. QE will not end this summer. This should help to support Gold at the 1550 level and at least in the medium term point things back to the 1800 level.
Trade Idea 2: Shorting the yen.
As already expressed, Japan has introduced a monumental QE program that rivals that of the U.S. in an economy much smaller than the U.S. Over the next weeks to possibly months this printing of money should cause a much weaker YEN. Some ways to short the YEN is to buy a PUT on $FXY or buy the USD/JPY or AUD/JPY.
Putting the 2 trades together:
This is a trade designed to profit from the QE program introduced in Japan. In effect we are going long Gold in dollar terms either by buying Futures as I did at 1562 and initially targeting 1620. Which is the next near term resistance and then ultimately targeting the top of the 2 year channel at around 1755-1800. Or buy going long GLD near the support at 150 here at 152.52 and targeting initially 157.71 and the top of the 2 year channel in GLD at 170. At the same time I have bought USD/JPY at 96.5 and am intitally targeting 100 and then 104 based previous support and resistance levels represented on the USD/JPY chart. I have also bought a 101 PUT on $FXY with a 42 day Expiration in May in case price action becomes choppy.
Conclusion:
Buy Gold Futures, or the Gold ETF $GLD, and short JPY by buying a PUT on $FXY or shorting the YEN using Forex to maximize profit from the opportunity the Japan QE gives us. We are targeting gold back up to the top of the range at $1800.
http://finviz.com/futures_charts.ashx?t=GC
http://finviz.com/futures_charts.ashx?t=6J
In the shorter term Gold has been on a downtrend and has been selling off from the top of the channel at about 1755 and encountered an intraday low of 1539.7 on Thursday. Some of what accelerated losses below the $1600 level were comments from a FED official that QE could end as soon as this summer if Labor conditions continued to prove at the current pace.
1. Case for going long Gold
a.) Technical Case- As explained above we are very close to the bottom of the 2 year channel and have a very strong pyschological support level of 1550 to place stops below and target the top of the channel at around 1800. After todays NFP report Gold seems to be stabilizing at this support level and has bounced back to 1574 and has failed to close on the Daily chart below 1550. Gold is also preceded by a strong uptrend which leads me to believe we may possibly still be in a continuation channeling pattern.
b.) Fundamental Case- As explained above, the accelerated sell off below 1600 was caused by comments by a FED official saying that if labor conditions continued to improve at the current rate that QE could end. Todays weak NFP report as well as this weeks unemployment claims, uptick in the unemployment rate, and weak ADP report most likely mean that QE will at least not end any time this summer as was hinted by the FED official.
In addition we also now have Japan introducing a monumental QE program and printing, The ECB President hinted that further QE was likely to come this week, and it appears that the U.S. QE will not end this summer. This should help to support Gold at the 1550 level and at least in the medium term point things back to the 1800 level.
Trade Idea 2: Shorting the yen.
As already expressed, Japan has introduced a monumental QE program that rivals that of the U.S. in an economy much smaller than the U.S. Over the next weeks to possibly months this printing of money should cause a much weaker YEN. Some ways to short the YEN is to buy a PUT on $FXY or buy the USD/JPY or AUD/JPY.
Putting the 2 trades together:
This is a trade designed to profit from the QE program introduced in Japan. In effect we are going long Gold in dollar terms either by buying Futures as I did at 1562 and initially targeting 1620. Which is the next near term resistance and then ultimately targeting the top of the 2 year channel at around 1755-1800. Or buy going long GLD near the support at 150 here at 152.52 and targeting initially 157.71 and the top of the 2 year channel in GLD at 170. At the same time I have bought USD/JPY at 96.5 and am intitally targeting 100 and then 104 based previous support and resistance levels represented on the USD/JPY chart. I have also bought a 101 PUT on $FXY with a 42 day Expiration in May in case price action becomes choppy.
Conclusion:
Buy Gold Futures, or the Gold ETF $GLD, and short JPY by buying a PUT on $FXY or shorting the YEN using Forex to maximize profit from the opportunity the Japan QE gives us. We are targeting gold back up to the top of the range at $1800.
http://finviz.com/futures_charts.ashx?t=GC
http://finviz.com/futures_charts.ashx?t=6J
Attached Image(s) (click to enlarge)
