FGLDH2025 trade ideas
Bitcoin and Gold to Counter InflationConsidering how Gold and Bitcoin surged significantly in response to inflation when it peaked at 9% in June 2022, and given that they are still maintaining their high levels, it seems the fear of inflation is not yet over.
Today, I will focus on Gold and strategies to manage this upward trend, which you can also apply to Bitcoin.
Mirco Gold Futures & Options
Ticker: MGC
Minimum fluctuation:
0.10 per troy ounce = $1.00
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
What’s Flowing: Gold Short (CONTRACTION?)Gold futures are displaying a bearish trend as margins compress alongside a price decline. This contraction suggests a short-term downside continuation, making it a crucial moment for traders to monitor levels for potential retracement or further drops.
Key Observations:
1. Price Action: Gold is trading near the lower boundaries of a consolidation zone, with resistance levels firmly capping upward moves.
2. Compression in Margins: As margins tighten, the market indicates decreasing volatility, creating a conducive environment for strategic short positions.
Hedge Opportunity:
For traders holding long Gold positions, hedging against further downside risk is now a practical solution. My Gold/Silver Inter-Market Spread Trading PAMM account offers a robust strategy to manage exposure and optimize returns through inter-market hedging techniques.
Feel free to reach out to learn more about how to diversify and protect your Gold investments with minimal risk.
Reach out for more information on the Gold/Silver Ratio Hedge!
Gold11 27 24 gold gapped higher on the open and this gave me a chance to Define range boxes that I can use to make trade decisions. I posted this at around 11:00 PM and then I made some speculations that may or may not work out and that's okay as long as we find a trade location and manage it with small stops.
Rolling Correlations and Applications for Traders and Investors1. Introduction
Markets are dynamic, and the relationships between assets are constantly shifting. Static correlation values, calculated over fixed periods, may fail to capture these changes, leading traders to miss critical insights. Rolling correlations, on the other hand, provide a continuous view of how correlations evolve over time, making them a powerful tool for dynamic market analysis.
This article explores the concept of rolling correlations, illustrates key trends with examples like ZN (10-Year Treasuries), GC (Gold Futures), and 6J (Japanese Yen Futures), and discusses their practical applications for portfolio diversification, risk management, and timing market entries and exits.
2. Understanding Rolling Correlations
o What Are Rolling Correlations?
Rolling correlations measure the relationship between two assets over a moving window of time. By recalculating correlations at each step, traders can observe how asset relationships strengthen, weaken, or even reverse.
For example, the rolling correlation between ZN and GC reveals periods of alignment (strong correlation) during economic uncertainty and divergence when driven by differing macro forces.
o Why Rolling Correlations Matter:
Capture dynamic changes in market relationships.
Detect regime shifts, such as transitions from risk-on to risk-off sentiment.
Provide context for recent price movements and their alignment with historical trends.
o Impact of Window Length: The length of the rolling window (e.g., 63 days for daily, 26 weeks for weekly) impacts the sensitivity of correlations:
Shorter Windows: Capture rapid changes but may introduce noise.
Longer Windows: Smooth out fluctuations, focusing on sustained trends.
3. Case Study: ZN (Treasuries) vs GC (Gold Futures)
Examining the rolling correlation between ZN and GC reveals valuable insights into their behavior as safe-haven assets:
o Daily Rolling Correlation:
High variability reflects the influence of short-term market drivers like inflation data or central bank announcements.
Peaks in correlation align with periods of heightened risk aversion, such as in early 2020 during the onset of the COVID-19 pandemic.
o Weekly Rolling Correlation:
Provides a clearer view of their shared response to macroeconomic conditions.
For example, the correlation strengthens during sustained inflationary periods when both assets are sought as hedges.
o Monthly Rolling Correlation:
Reflects structural trends, such as prolonged periods of monetary easing or tightening.
Divergences, such as during mid-2023, may indicate unique demand drivers for each asset.
These observations highlight how rolling correlations help traders understand the evolving relationship between key assets and their implications for broader market trends.
4. Applications of Rolling Correlations
Rolling correlations are more than just an analytical tool; they offer practical applications for traders and investors:
1. Portfolio Diversification:
By monitoring rolling correlations, traders can identify periods when traditionally uncorrelated assets start aligning, reducing diversification benefits.
2. Risk Management:
Rolling correlations help traders detect concentration risks. For example, if ZN and 6J correlations remain persistently high, it could indicate overexposure to safe-haven assets.
Conversely, weakening correlations may signal increasing portfolio diversification.
3. Timing Market Entry/Exit:
Strengthening correlations can confirm macroeconomic trends, helping traders align their strategies with market sentiment.
5. Practical Insights for Traders
Incorporating rolling correlation analysis into trading workflows can enhance decision-making:
Shorter rolling windows (e.g., daily) are suitable for short-term traders, while longer windows (e.g., monthly) cater to long-term investors.
Adjust portfolio weights dynamically based on correlation trends.
Hedge risks by identifying assets with diverging rolling correlations (e.g., if ZN-GC correlations weaken, consider adding other uncorrelated assets).
6. Practical Example: Applying Rolling Correlations to Trading Decisions
To illustrate the real-world application of rolling correlations, let’s analyze a hypothetical scenario involving ZN (Treasuries) and GC (Gold), and 6J (Yen Futures):
1. Portfolio Diversification:
A trader holding ZN notices a decline in its rolling correlation with GC, indicating that the two assets are diverging in response to unique drivers. Adding GC to the portfolio during this period enhances diversification by reducing risk concentration.
2. Risk Management:
During periods of heightened geopolitical uncertainty (e.g., late 2022), rolling correlations between ZN and 6J rise sharply, indicating a shared safe-haven demand. Recognizing this, the trader reduces exposure to both assets to mitigate over-reliance on risk-off sentiment.
3. Market Entry/Exit Timing:
Periods where the rolling correlation between ZN (Treasuries) and GC (Gold Futures) transitions from negative to positive signal that the two assets are potentially regaining their historical correlation after a phase of divergence. During these moments, traders can utilize a simple moving average (SMA) crossover on each asset to confirm synchronized directional movement. For instance, as shown in the main chart, the crossover highlights key points where both ZN and GC aligned directionally, allowing traders to confidently initiate positions based on this corroborative setup. This approach leverages both correlation dynamics and technical validation to align trades with prevailing market trends.
These examples highlight how rolling correlations provide actionable insights that improve portfolio strategy, risk management, and trade timing.
7. Conclusion
Rolling correlations offer a dynamic lens through which traders and investors can observe evolving market relationships. Unlike static correlations, rolling correlations adapt to shifting macroeconomic forces, revealing trends that might otherwise go unnoticed.
By incorporating rolling correlations into their analysis, market participants can:
Identify diversification opportunities and mitigate concentration risks.
Detect early signs of market regime shifts.
Align their portfolios with dominant trends to enhance performance.
In a world of constant market changes, rolling correlations can be a powerful tool for navigating complexity and making smarter trading decisions.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Gold Futures: Current Analysis (30-11-2024)We are currently developing the impulse (wave C). The 13 MA is below the 55 MA, indicating a slowdown in the movement. In the RSI Difference indicator , the RSI is between the 13 and 55 SMAs and has failed to surpass the 55 SMA, signaling the continuation of the wave C. The final confirmation for this movement will be the 55 EMA turning downward.
🔍 Insights from Weekly Timeframe: Divergences and RSI positioning below both SMAs reinforce the likelihood of a continued downtrend.
How I use Fibonacci extensions Tuesday on this video we take a look at oil and gold... the real purpose is to take a closer look at how I use extensions since you can end up trading with extensions all day long and go crazy. I think that both markets...... gold... and oil.... are contracted markets.. and if I use range boxes to Define where the buyers and sellers are I think there's a little more advantage to the gold market...... but you really want to trade markets that aren't so expanded because they have no range and that means they have less reward.... whether you trade as a buyer or a seller. the good thing is that if you can have a comfortable feeling that the markets contracted it should trigger a Feeling for you to not be so quick to take a trade because a contracted Market is a function of buyers and sellers and that the Market isn't clear since there's no distance between buyers and sellers. if the buyers and sellers are unclear because of what contraction means why would you expect yourself to have a good trade when there's no range?Remember... it is far better to be a chicken because you're not sure where the buyers and sellers are.... versus a dead chicken with chicken parts all over the chart because you were trying to make decisions when the market was ambiguous for both buyers and sellers if it's a contracted Market.
#202448 - priceactiontds - weekly update - gold futuresGood Evening and I hope you are well.
tl;dr
gold futures: Neutral. Bulls need a strong break above 2700 to test 2720 and the upper triangle line, above that is 2750 and if they break even that, no more resistance until 2800. Most bullish target I have left is 2900 but that’s too far to talk about right now. If bears break below 2630, it’s likely going down to 2560 again.
Quote from last week:
comment: Market overdid it a bit with the selling and since Monday there are no bears to be found. Measured move up gives us 2866 and if we reach that, 2900 is probably given. You can’t think bearish at all until we reach 2800 again. 5 very strong bull bars closing at the highs. Can’t get any stronger for the bulls. Right now we went from overbought to oversold to overbought. Some pullback is expected and it will likely be a great buying opportunity.
comment: Talk about you can’t time the market. Pretty good call that was from the above outlook last week. Higher low, and lower high. Triangle on the daily, very bullish above and very bearish below. Not rocket science to read this. I do think bulls are slightly favored.
current market cycle: Bull trend
key levels: 2500 - 2900
bull case: My line in the sand was 2650 and low was 2630. Next stop for the bulls is 2700 and 2720. A break above the bear line opens the market up to 2800 again. That is all there is to it right now. Clear invalidation levels and breakout points to set alerts.
Invalidation is below 2630.
bear case: Bears had a pretty amazing day on Monday but the follow through was disappointing and so we have formed a triangle. Wait for the breakout to either side and hop along or play the current range.
Invalidation is above 2750.
outlook last week:
short term: Max bullish if we stay above 2650. 2800 is my expectation and 2900 possible.
→ Last Sunday we traded 2712 and now we are at 2681. Missed the low by about 20 points but ok. Not the best outlook but I wrote that a pullback is expected and we got one.
short term: Slightly bullish if we stay above 2630. Max bullish above 2750.
medium-long term - Update from 2024-11-24: Likely to close 2024 above 2800 but I do think the recent selling was the first hint that we will transition into a trading range soon.
current swing trade: None
chart update: Added bear trend line from the triangle.
Gold Lost Steam as New US Administration to Take World StageCOMEX: Micro Gold Futures ( COMEX_MINI:MGC1! )
On Monday, gold prices tumbled 3% on reports of Israel-Hezbollah ceasefire and the nomination of Scott Bessent as the U.S. Treasury Secretary. Spot gold fell 3.4% to $2,619.43 per ounce. COMEX gold futures shed 3.4% to $2,620.8.
As a safe-haven investment, gold holds strong appeal with the rise of geopolitical crisis. After the US presidential election, investors anticipated that both the conflicts in Ukraine and the Middle East neared end. The new Treasury pick reduces the risk of escalating trade conflicts, as we have seen in Mr. Trump’s first term. Overall, gold falls on anticipation of lower geopolitical risks in the second Trump presidency.
Where would gold prices go from here? I find it useful to analyze the 5-year price trends and identify key factors driving gold prices up and down.
From December 2019 to October 2024, golds prices rose 88%. Gold’s recent plunge started in late October, as market anticipated a Trump win. During this five-year period, gold prices have seen significant rises for five times, and major pullbacks for four times.
Gold Bull Trends and the Key Drivers:
• When the COVID pandemic broke out in January 2020, gold prices rose sharply, and the stock market plummeted. This highlights gold's safe-haven investment function.
• In February 2022, gold prices rose in response to the outbreak of the Russia-Ukraine conflict. Geopolitical crisis was the key driver.
• High inflation in the US, peaked at a 9.1% CPI in July 2022, pushed gold prices to record high. Gold is considered a good hedge for inflation.
• In October 2023, the Hamas-Israeli conflict broke out. Gold rallied again as a safe-haven investment.
• The U.S. Federal Reserve cut interest rates by a massive 50 basis points at its September 2024 policy meeting, followed by another 25-bp cut in November. With the expectation of more Fed cuts, gold started a new rally in July 2024. The trade logic: Fed cuts reduce the rate of return on interest-bearing assets such as Treasury bonds and bank deposits, which on turn makes gold investment more appealing.
Gold Bear Trends and the Key Drivers:
• China resumed manufacturing activities relatively soon after the pandemic. While the U.S. and Europe were still on lockdown and standstill, Chinese goods were exported to fill the gap. This helped lower the perceived risk of an once-a-century health crisis. Gold prices pulled back as a result.
• The Russia-Ukraine conflict entered a stalemate. It did not spread to other European countries and escalated into World War 3. The geopolitical crisis has subsided, and as a result, gold prices withdrew from advancing.
• After the Fed hiked rates 11 times in a row, US inflation has finally cooled down. Gold completed its mission as inflation hedge. Consequently, investors pulled money out of gold and into stocks, causing gold prices to fall.
Trade Setup with Micro Gold Futures
On November 5th, Mr. Trump won by a landslide and was re-elected as the 47th U.S President. In the following three weeks, he quickly completed the nomination of 15-member Cabinet in his new administration.
Based on campaign promises and new Cabinet picks, investors interpret the new Trump policy in a series of the so-called "Trump trades". In my own opinion, these include strong US dollar, weak gold prices and a secular bull market for cryptocurrencies.
• The ascension of a political strongman could bring about ceasefires in both the Russia-Ukraine front and the Middle East. As we recall the relatively peace time during the first Trump term, the expected de-escalation of geopolitical crises in his second term could drive gold prices down in the next four years.
• The "America First" policy is bullish for US dollar. 1) Bringing manufacturing back onshore would strengthen U.S. economy. 2) High tariffs would reduce trade deficits overtime, although inflation may go up in the short term. 3) Slashing fiscal spending by $2 trillion a year would shore up the government coffer. Combined, these policies would defend the dollar's status as an international reserve currency. The dollar index has risen from 103 to 107 in the past month. A strong dollar is bearish for the dollar-denominated gold, as foreign investors would pay more with foreign currencies.
• Mr. Trump is a strong supporter of cryptocurrencies. In the past three months, bitcoin has doubled in prices from $50,000 to nearly $100,000. The campaign promise to establishment of a central bank reserve for bitcoin, if materialized, would push crypto prices significantly higher in the next four years.
The CFTC Commitments of Traders report shows that on November 19th, total Open Interest (OI) for Gold Futures is 502,952 contracts, down 33,029 or -6.2% from prior week. Leading the position cutback is Managed Money, which reduces 10,306 (-5.1%) in long positions and 15,911 (-25.6%) in spreading positions. Movement of the “Small Money” is a good indicator of future price trend.
Based on the above analysis, if a trader is bearish on gold prices, he could express his opinions by shorting the COMEX Micro Gold Futures ( AMEX:MGC ).
MGC contracts have a notional value of 10 troy ounces. With Monday settlement price of 2,712.2, each December contract (MGCZ4) has a notional value of $27,122. Buying or selling one contract requires an initial margin of $1,150.
The MGC contracts are very liquid. On Monday, MGC has a daily trade volume of 178,663 contracts and an Open Interest of 51,364.
Hypothetically, if gold prices pull back 5% further to 2,576.6, a short position would gain $1,356 (=135.6 x $10). Using initial margin as cost base, a theoretical return would be +118% (= 1356 / 1150). The risk of shorting futures is a rise on gold prices. Investors could lose part or all of their initial margin.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Weekly Forex Forecast Nov. 25-28th: GOLD Resumes Bullish Trend.After three bearish Weekly candles, safehaven seekers pushed the prices past the previous weekly high with a strong close. Will this continue next week? I suspect it will. The Monthly and Weekly TFs show bullishness, and indicate the bearishness was short term.
That said, I am prepared to sell if the entry function presents itself at the current -FVG price is contacting. This price level is in the premium of the trading range, making it a great area to look for a short. But it is counter-trend, so a reasonable profit target is in order.
Check the comments section below for updates regarding this analysis throughout the week.
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Disclaimer:
I do not provide personal investment advice and I am not a qualified licensed investment advisor.
All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, suggestions, expressed or implied herein, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies.
I will not and cannot be held liable for any actions you take as a result of anything you read here.
Conduct your own due diligence, or consult a licensed financial advisor or broker before making any and all investment decisions. Any investments, trades, speculations, or decisions made on the basis of any information found on this channel, expressed or implied herein, are committed at your own risk, financial or otherwise.
GOLD SELL SETUPI had a Daily uptrend with a 4hr choch. Waiting for a 1hr retest for continuation down between 2,582 and 2,542
HAPPY TRADING!!!
Gold will raid buy stops then GO SHORTS&P Composite news is expected to push price down. Price will first push up to clear buy stops, then look for a short to Short term Swing Low
Gold December 4th the gold market is the guinea pig because there are some issues with my terminology that need to be clarified. I've been using some incorrect terminology when I use the term bull flag or Bear Flag and I looked it up and that made things worse so I explained here what I mean. also I know people will have problems with my terminology regarding 2 bar reversals. I discovered that pattern and I didn't get it from books but I know the pattern works because other people must be using it.... because it works. so I'm not inventing any tools I'm simply looking at patterns that are reversal patterns in the market that can happen for many reasons and the beautiful thing about a two-bar reversal is that I can use it with a daily chart and a four-hour chart. sometimes the daily chart closest at a high or near the high and that represents 1 bar.... and then the next bar on the opening price produces another bar and the pattern between yesterday's market and today's market May give me a 2 bar reversal. the pattern of that trade requires yesterday's bar and today's bar... so you have a two-bar reversal from a bar generating yesterday with a bar generated today.
Oher times you have a 2 bar reversal within 1 day of trading. there is another point to this and that is that some of the best trades happen on the opening price which is a part of the current day and happens when most Traders are not following that market. what I'm saying is not complicated but it takes time to look at these markets and think about the market before you trade the market. this process takes time and you will learn when the conditions are a little more complex and involve opening price trades that you can get a feel for when you enter the market or not.... sometimes you need the market to move a little bit first before you commit.
Good JobI just want you to know that you do a good job 👍. Thank you for your hard efforts in fighting against the bad job 👎. Continue to do the good job 👍. Thank you for your service Champion!
Gold BAT patternDEC10th FOMC meeting 75+% down 25bp.
ZCIS swap up to 3%.
10y yield about highest.
assumed condition:
Gold bat pattern
COMEX:GC1!
short @2667 stop buy@2685
prz 1st 2625-2560
prz 2nd 2775
Gold Bias 11/26/2024
Gold will go down after news, price will manipulate upwards then accumulate and then take out buy side liquidity then go short right as this occurs. Thanks ICT
#202447 - priceactiontds - weekly update - goldGood Evening and I hope you are well.
tl;dr
gold futures: I was bullish last Sunday and boi did that pay but now is not the time to buy into this climax. Market is way overdue for a pullback but I would not try to pick the top here. Only longs for me on this but only after we have seen some sideways to down movement. Buying is strong enough to expect a second leg up, which could bring us to 2900. I do think it is highly likely that we close this year above 2800.
Quote from last week:
comment: Market took 48 days to gain the 10% we now lost in 14. This selling is climactic and thus unsustainable. We will soon see a bigger bounce, if not a complete reversal to 2800 again. On the daily chart it looks nasty but on the weekly chart tis but a scratch. Bears closed all but one open bull gap and technically just retested the breakout price for the previous bull leg. This selling is strong enough to seriously doubt much higher prices than 2800. What I do expect is some bounce and more sideways movement between 2600-2800 before we could test lower prices (2300-2400) next year. For now it’s too early to go long, since market has not found a credible bottom yet but since market has not traded much below the weekly 20ema for a year. Swing longs with stop 2480ish are very reasonable.
comment: Market overdid it a bit with the selling and since Monday there are no bears to be found. Measured move up gives us 2866 and if we reach that, 2900 is probably given. You can’t think bearish at all until we reach 2800 again. 5 very strong bull bars closing at the highs. Can’t get any stronger for the bulls. Right now we went from overbought to oversold to overbought. Some pullback is expected and it will likely be a great buying opportunity.
current market cycle: Bull trend
key levels: 2500 - 2900
bull case: Can you buy the highs at 2700 and hope for a 6th consecutive bullish day? I would not. Only interested in buying this on pullbacks but I due think it’s bullish and nothing else. Will likely close 2024 above 2800 if not 2900. Next target for the bulls is 2750, followed by 2800. Dip can go as low as 2650 but below I would get more cautious.
Invalidation is below 2650.
bear case: Bears gave up on Monday. No argument for them at all here and I won’t make much up. Can only see more selling pressure coming back around 2800. I expect any pullback to be bought.
Invalidation is above 2750.
outlook last week:
short term: Neutral until bulls claim 2630 again. 2540 just has to hold or if we spike down to 2500 we would have to see huge buying or this will flush down more. Bears are in full control until market trades above the 4h ema again.
→ Last Sunday we traded 2570 and now we are at 2712. Perfect. Hope you made some or at least did not short the lows.
short term: Max bullish if we stay above 2650. 2800 is my expectation and 2900 possible.
medium-long term - Update from 2024-11-24: Likely to close 2024 above 2800 but I do think the recent selling was the first hint that we will transition into a trading range soon.
current swing trade: None
chart update: Added two legged correction (ABC)
HTF Daily/4Hr Key Levels on we could see Mitigated this week...?COMEX_MINI:MGC1!
He who is not courageous enough to take risks will accomplish nothing in life: -Muhammad Ali
Hope all is well. Here in this short video I have displayed my insight or outlook so be it on GOLD's HTF's Daily/4HR. I have learned to remove much of the distraction off the charts and solely focus on my Daily/4Hr Key levels and wait for Mitigation Alerts.... This weekend I focused solely on better understanding HTF External Structure vs Sub structure.... From the Daily/4Hr TF perspective my question of the Day is, 'Who has the stronger hand?' this will determine where price is headed and give me my best directional bias for the day as an intraday trader. Being that my execution TF is based off the 5m.
From Basic Skill to Professional Dominance is where were headed...!! -500KTrey🏁
Gold plunges as Trump 'trumps' seasonalsLast week I revealed in a video of my scepticism gold would tracks its seasonality into December , given its outperformance earlier in the year and the hunch that Trump 2.0 would likely to overshadow typical flows. And Trump's US Treasury Secretary cabinet pick has done just that.
Monday's price action should serve as a stark reminder that seasonality has taken a back seat with its prominent bearish engulfing day and most bearish candle in four years. And there could be further losses ahead.
The daily chart shows the drop from its all-time high (ATH) came in three waves, which suggests it is the beginning of a larger ABC retracement. Assuming Monday's engulfing candle was the end of wave B, a 100% projection (wave equality) could see gold fall to ~2460.
note that the daily low found support around a high-volume node (HVN) and weekly S1 pivot point. A bullish divergence is also forming on the 1-hour RSI (2) to suggest a bounce.
Bears could seek to fade into retracement within Monday's range to try and increase the reward to risk ratio.
MS
Don't expect seasonality to save gold's baconWe're at that time of the year that gold tends to outperform. Yet with bigger drivers behind the wheel, I doubt that gold's 5% rebound will extend through to December. In fact, I'm now looking for short entries. Using stats from seasonality, ETF flows and market positioning, I outline my base for bears before highlighting key levels for them to consider.
MS.
Commodities: Safeguarding Your Wealth in Uncertain TimesInvesting in Commodities: A Comprehensive Guide
In the quest for a balanced investment portfolio, commodities emerge as a crucial component, contributing to diversification and risk management. Commodities refer to raw materials or primary agricultural products traded globally, ranging from oil and gold to corn and wheat. Their unique characteristics offer investors opportunities to safeguard their assets and potentially profit during economic fluctuations, making them an essential element in mitigating risks associated with stock and bond markets.
At their core, commodities are fundamental materials employed in the production of goods and services, acting as a foundation for the global economy. These assets can be traded, bought, or sold, with their market value primarily driven by supply and demand dynamics. Unlike equities or fixed-income instruments, which represent ownership stakes or debt commitments, commodities are tangible resources that investors can physically possess or leverage for financial gain.
The primary allure of commodities lies in their potential to hedge against inflation and enhance portfolio diversification. Their often independent price movements compared to traditional asset classes, like stocks and bonds, make them valuable during times of economic uncertainty. For instance, when inflation rises, the prices of commodities frequently increase, preserving investor purchasing power and protecting against currency devaluation.
Commodities can be broadly classified into two categories:
- Hard Commodities: This group includes energy resources such as oil and natural gas, as well as metals like gold, silver, and platinum.
- Soft Commodities: These encompass agricultural products like wheat, corn, and coffee, along with livestock such as cattle and hogs.
By diversifying investments across both categories, investors can tap into various market trends and opportunities, whether it’s responding to geopolitical events affecting oil prices or poor harvests leading to increases in agricultural commodity costs.
Investing in commodities can take several forms, each with distinct characteristics and associated risks. Here are the main avenues available to investors:
- Direct Purchase
Buying physical commodities—like gold bars or silver coins—allows investors to own tangible assets. This method provides a straightforward hedge against inflation but comes with challenges in terms of storage and security, particularly for significant investments.
- Futures Contracts
Futures contracts are agreements to buy or sell a specified quantity of a commodity at a predetermined price on a future date. While futures trading can yield high returns due to leverage, it also poses substantial risks, requiring a thorough understanding of market dynamics and careful management.
- Commodity ETFs
Exchange-Traded Funds (ETFs) that track the prices of individual commodities or a basket of them offer a more passive investment option. These funds provide liquidity and diversification without the need for physical ownership or the complexities of futures trading.
- Commodity Stocks
Rather than investing directly in commodities, one can consider buying shares of companies engaged in the production of commodities, such as mining firms or oil companies. This strategy allows investors to benefit indirectly from commodity price movements while also receiving dividends.
- Contracts for Difference (CFDs)
CFDs are agreements that enable investors to speculate on commodity price movements without owning the underlying assets. This trading method is well-suited for experienced investors looking to capitalize on short-term market fluctuations but comes with amplified risks due to leverage.
Gold Futures Monthly Chart from 1975
- Hedge Against Inflation
Commodities are often viewed as a safe haven during inflationary periods. As general prices rise, so too do commodity values, making them an effective strategy for preserving purchasing power.
- Portfolio Diversification
Incorporating commodities into an investment strategy can enhance diversification. They generally exhibit low or negative correlations with stocks and bonds, helping to cushion portfolios against market downturns.
- Cyclical Performance
Commodities typically respond to economic cycles, performing well during times of growth when demand increases. Conversely, they may benefit from investor behavior during market instability, particularly in the case of precious metals.
- Supply and Demand Insights
Investors can leverage the fundamental principles of supply and demand to identify profitable investment opportunities. For instance, seasonal changes or geopolitical disruptions may create market imbalances affecting commodity prices.
While the potential rewards of commodity investing are considerable, the associated risks warrant careful consideration:
- Price Volatility
Commodity markets can be highly volatile. Investors may face sharp price swings, influenced by speculation, macroeconomic trends, or unexpected changes in supply and demand, which can lead to significant financial losses.
- Geopolitical Instability
Conflicts and political events can disrupt commodity supply chains, spurring unexpected price changes. For example, sanctions on oil-exporting countries can impact global supply and drive up prices.
- Environmental Changes
Natural events, including droughts and extreme weather, significantly impact agricultural commodities, while environmental regulations can affect energy-related assets. These factors introduce unpredictability and risk into commodity investments.
Silver Futures Monthly Chart from 1975
Interested in exploring commodity investments? Here’s a step-by-step guide to help navigate this investment landscape:
- Evaluate Your Risk Appetite
Before you commence commodity trading, assess your risk tolerance. If you prefer stable investments, consider allocating funds to less volatile commodities or diversified commodity ETFs. Conversely, if you’re open to high-risk scenarios, explore potential opportunities in more volatile markets.
- Select the Right Commodities
Research and identify commodities that align with your financial goals. For instance, gold may serve as a hedge against inflation, while industrial metals may thrive during economic growth phases.
- Determine Your Investment Method
Choose from various investment methods, whether direct purchases, futures, ETFs, stocks, or CFDs. Each approach carries its risk/reward profile, so it’s paramount to select one that suits your investment strategy.
Cocoa Futures Monthly Chart from 1980
Looking ahead to 2024 and beyond, several trends will shape the landscape of commodity investing:
- Transition to Green Energy
The ongoing shift toward renewable energy is poised to affect traditional fossil fuels, especially oil. As nations aim to reduce carbon footprints, the demand for oil may taper, albeit gradually, while renewable energy commodities like lithium and cobalt gain momentum.
- Emerging Markets Demand
Countries in rapid industrialization, particularly in Asia, are expected to drive demand for industrial metals. Investors should keep a close watch on these markets as they become increasingly vital players in the global commodity landscape.
- Rising Interest in Renewable Commodities
As the world gravitates toward sustainable practices, the demand for renewable commodities essential for electric vehicles and clean energy technologies is anticipated to surge. This shift presents exciting investment opportunities aligned with the growing push for decarbonization.
Copper Futures Monthly Chart from 1988
In conclusion, investing in commodities presents both opportunities and challenges. For those looking to diversify their portfolios and hedge against inflation, commodities can be an attractive option. However, the inherent volatility and unique risks make it crucial for investors to carefully consider their financial objectives and risk tolerance.
By staying informed about market trends, employing sound strategies, and understanding the dynamics of both supply and demand, investors can navigate the complex world of commodities to potentially achieve long-term success. Embracing this asset class effectively entails a proactive approach, ensuring alignment with broader investment goals in an ever-evolving financial landscape.
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Gold Positioning: Medium-Term Shorts with Long-Term Bullish OutlI am currently holding a medium to long-term bullish position on gold, with a target range of $2200-$2250. For the medium term, I am also taking short positions, with key stop levels identified before reaching the $2250 area.
