2008-10-31

TRADE UPDATE: All that shines is not Gold

My Development as a Commodities Trader: All that shines is not Gold

I am back in this trade now that two uncertainties are out of the way. Fed has cut as expected and BOJ has cut as well. This should help bring some "stability" in the markets and cut those wild swings we have been witnessing lately.

Since long bonds (TBOND) anticipate future interest rate move, it is quite reasonable to expect that chances to interest rates rising in future for US are higher than lower. They anyway do not have a lot to reduce. There is of course talk of US rates going to zero or further down but I feel that would require a real armagadon to surface. As of now I am not hanging my hat on zero rates in US. Therefore I only see downside in long bonds. See Few bubbles left to burst.

With that said, I would expect Dollar to go up, Yen to decline (after an initial bounce up may be until 0.010600 area on IMM futures (JPYUSD) (94.34 in USDJPY term), bonds to fall and stocks to go up (possibly after testing some downside around 900-880 in S&P 500)

All this would leave gold on a precipatious path. The diwali demand from India is over and they did not buy as much jewelary as expected. Rupee decline has made Gold expensive in India even after recent fall in USD terms and the trend is likely to continue. My target for 650/550 remains and some projections are pointing to 450 level as well but that is bit far and I am merely keeping an eye at that level.

I have gone short at 771 level yesterday with stops above 840. At the first instance I am looking for breach of 681 where I will add to shorts and move stops down. I am looking to remain short gold until the inflation starts raising its head up and that would require the economies to improve.

What can de-rail this analysis is if US end up lowering rates further. Or stocks fail to stabilise and make new lows.

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-VS