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Goldollar Index

One important indicator for gold is the Goldollar index.  The Goldollar index is formulated by taking the price of gold and multiply it by the US Dollar Index.  This has the effect of giving us the trend of the price of gold isolated from movements in the US Dollar.  As far as we know the Goldollar index was devised by the McClellans of McClellan Oscillator fame.  Just as the developers intended we use this index to help forecast and confirm what the price of gold is likely to do and what it is currently doing.  If the Goldollar index breaks out to the upside gold usually follows, and if it tanks then gold follow to the downside as well.  While it is not perfect it has definitely aided us in our trading.

So what is the Goldollar index showing us right now?  As you can see in the chart below the Goldollar index in the lower pane looks similar to the gold chart in the upper pane.  The main difference is that the Goldollar index has broken out from its consolidation and is right at its highs and gold is not.  While not the holy grail, and therefore sometimes wrong this would indicate to us that in the relatively near future gold will be moving higher. (Click on chart to enlarge)

Gold and Goldollar Index

goldollar-index-and-gold

Disclaimer-currently hold no position in gold but that is likely to change soon

Happy Trading,

Dave@TheMacroTrader.com

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GLD Gold ETF and SLV Silver ETF

We were long precious metals coming into 2009 as gold, silver, and even platinum were climbing higher.  Eventually we got stopped out as the group consolidated for the next three months.  The last two weeks gold and silver have been able to breakout of the consolidation and is once again in an uptrend.  We went long in out model portfolio last week and are currently looking to add to our position if the trend continues.

GLD Gold ETF

gld-gold-etf

SLV Silver ETF

slv-silver-etf

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Happy Trading,

Dave@TheMacroTrader.com

Why We Bought Gold

In our December 7th, 2007 issue we went bullish gold. By way of the ETF GLD we got in at $79.60. Currently it is right around $87. So to help our subscribers and potential subscribers understand our trade process we felt it would be helpful to walk you through this trade.

We look for potential trades fundamentally and trade them technically. As we have mentioned before technical analysis helps us define our risk vs. reward and makes our trading more objective. We like to think we get the best of both worlds.

Fundamentally there are several things that are bullish for gold and precious metals in general.

-Negative real rates. When inflation adjusted rates are negative you want your money in real assets.

-Falling US Dollar. If the US Dollar is declining in value relative to almost anything you want your money in other currencies. While we don’t necessarily think we need to be back on the gold standard, we do see gold as an alternative currency.

-Rising Swiss Franc. Historically when the Swiss Franc is rising it means that investors are putting their money in a safe haven currency. The correlations between gold and the Swiss Franc have held over the long term due to many of the same reasons.

-Rising Inflation. Again if your money is devaluing you want to put it somewhere else.

These are but a few of the reasons that we have been bullish gold. After we have a fundamental reason to go long or go short as the case may be we then look for a catalyst. That catalyst can come in many ways. Sometimes it is an actual economic number, a chart pattern, or any number of things. In this case it was a textbook example of a triangle consolidation.

GLD Gold ETF

As we have posted before we are huge proponents of risk management. We have found that for us technical analysis is one of the big pieces of the puzzle. Using charts we are able to define entry and exit points in an objective way. Some may disagree with us but we have found charts to be invaluable. In the case of gold we had wanted to get long for a while but it was overextended. Well patience paid off because it pulled back and consolidated and formed a strong triangle. We placed it in our newsletter and that same week we got in at $79.60. As of tonights close it is at $86.50 and our current stop is at $84.38

Happy Trading,

The Macro Trader

P.S. If you have any questions regarding our newsletter or anything else feel free to e-mail us at Editor@TheMacroTrader.com

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