The Gold Rush is On!
October 30th, 2008 Posted in Oil and Precious Metals
On Friday, Gold hit a 13-month low at a price of $680.80. Analysts have speculated that investors trading with a high degree of leverage have received margin calls in other asset classes and have been more willing to sell their Gold positions to finance the calls for more equity. This in turn has lowered the demand for Gold in the spot market.
A correlation to the reduced price in Gold seen over the past week may be due to the reduction of carry trades. As a trader’s position is squeezed by an appreciating JPY, traders are facing more margin calls. In order to avoid closing a position that may turn profitable, traders abandon their Gold trades, selling, and driving down the price of Gold. This may only be a short term reduction in the price due to the de-leveraging process.
Fluctuations of $50-$100 are not surprising in this type of trading market. These types of trends are forecasted to continue for the next two weeks or until the deleveraging process has completed.
Traders are advised to follow the previous run up of the JPY. As the JPY appreciates, it sends Gold higher due to the pricing of Gold which is denominated in Dollars.
Gold right now may be the best short term trading instrument. It gives you fantastic options to trade in a volatile market. Whether you trade on fundamental data such as the Interest Rate spread between the U.S. and the U.K., or are a tech freak that drives trading decisions based on Flag Formations or Head and Shoulders, Gold can provide great opportunities for traders who want more diversification from currencies.
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Tags: carry trades, Gold, JPY, trading
