Posts Tagged ‘GLD’
Is Gold the New VIX?
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| Written by Jared Levy, Editor, Option Strategies Weekly | |||||
| Tuesday, 30 August 2011 09:58 | |||||
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I use statistics to predicted major movements in the market. Some signals are bullish, like this one I wrote about in Smart Investing Daily on June 7th. Just recently I found an abnormality in the way that options were being priced and traded. Back on July 22nd, the signals I saw were pointing to move sharply lower in the Nasdaq and S&P 500. Sure enough, these indexes dropped 18% almost immediately. I find these early warning signals in charts, trade volume, options, news stories, and in abnormal trading activity. I also find signals in correlations between securities. (This is one of my favorite signals.) But correlations can hard to spot. Correlations in the MarketBelieve it or not, just about every investor has come across a correlation in their analysis. For example, many investors look at something called beta. A stock’s beta tells us how volatile it is compared to the market. If a stock has a beta of 1 it should be moving at about the same rate as the index it belongs to. For example, Google (GOOG:NASDAQ) has a beta of 1.13, which means that if the market is up 1%, Google is going to be up about 1.13% on average. Stocks can have negative betas as well. The company China Green Agriculture Inc. (CGA:NYSE) has a beta of -5.52, which means if the market is up 1%, chances are this stock is going to be DOWN 5.52% on average. Most stocks, commodities and metals have natural relationships with one another. When these correlations become “disconnected,” it can be a sign that something is wrong. Major disconnections can be a Read more |
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Those of you who know me know that I love statistics and that I’m always looking for ANYTHING that gives me an “edge” or “early warning signal.”Smart Investing Daily – Is It Time to Buy Silver?
Friday, 06 May 2011
Unless you have been hiding under a rock, you probably know that silver has had a major correction over the past week. The precious metal plummeted about 30% from a high of almost $50 an ounce to less than $35 yesterday. This six-day drop is one of the largest since 1983.
Silver has given back just about all of its gains for the past month and some traders are thinking it might be time to get long. But before you run and buy silver, there are a couple things to consider.
Forces That Move Silver
The U.S. Dollar
There are many theories on why this sell-off is happening. Obviously, any real strength or even support in the U.S. dollar will generally be bearish for precious metals like gold and silver. This is mostly because the U.S. holds the largest stockpiles of these metals and they are traded in U.S. dollars globally. Even though gold is more of a recognized currency, they both have sensitivity to changes in the U.S. dollar’s value.
The falling U.S. dollar has recently leveled out. That means we’ve seen a small correction in dollar-denominated commodities and metals overall. Earlier this week, the European and London central banks held their rates steady. The ECB also hinted that they may not raise their rates next month either. This is good news for the U.S. dollar.
The U.S. dollar traded higher late in the day yesterday and sent other dollar-sensitive commodities like oil and even stocks much lower on the day. Oil had its largest percentage drop in three years. If you don’t believe that the dollar is in control here, think again…
For now, it seems that the U.S. dollar will continue to be relatively weak. The rally seems more like a short-term bump rather than a long-term trend. Current Federal Reserve policy puts general downward pressure on the U.S. dollar.
Gold/Silver Ratio
Then there is the historical ratio between gold and silver. A good “average” ratio of gold to silver is about 55, according to many experts. That means 1 oz. of gold should buy 55 oz. of silver. The gold premium is because there is much more silver on this Earth than gold. Even though silver has industrial uses beyond gold, there is a global desire, respect and currency reserve with gold that silver just does not have.
If that ratio gets extremely high, like 100, that means that silver is cheap relative to gold and may Read more
Gold & Silver Go Parabolic … Almost
Let’s flash back to May 2006, when gold prices were behaving in a similar fashion as today. The yellow precious metal saw almost a 40% rally over the course of a couple weeks.
The SPDR Gold Trust (NYSE: GLD) – an ETF that trades at about one-tenth the price of gold and actually holds gold in a trust – saw its share price surge from $52 to almost $72 in a matter of two months. Many called this a “parabolic move” at the time.
A parabolic move essentially means that the price of a security (or a commodity) makes a sharp, fast rise, usually out of a basing pattern and thus becomes overextended, usually within shorter durations (two weeks or less). Often, when a security makes a parabolic move, the amount that it rallies is beyond its “typical” behavior.
September 2010
If you look at the weekly chart below of GLD, on the bottom you will see a current weekly ATR, or average true range, of about $2.90. This basically means that the average TOTAL movement of GLD in any given week’s time is about $2.90 (at least it has been for the past 14 weeks).
Over the past eight weeks, GLD has moved from about $112 – $128, which is about 14%. If you divide eight weeks by this dollar change of $16, that’s about 50 cents per week. That move is certainly not abnormal, so the stock has really not made any extraordinary moves in term of volatility….
From Smart Investing Daily
If You Like Gold’s Rally, Silver May Not Be Far Behind
Wednesday, August 18, 2010
Last week I wrote about how gold may not only be a great investment for the short term (it’s up another $20 since my article) but also has excellent prospects for the long term because of its beauty, versatility, industrial use and inflation hedge. Silver has many of these properties as well and at a much lower price, but before you get all excited about gold and silver, there are some things you need to know about these two precious metals and how they are related.
A Little History on Gold and Silver
From Smart Investing Daily – An Easy Way to Buy Real Gold in Your Brokerage Account
| An Easy Way to Buy Real Gold in Your Brokerage Account |
| Written by Jared Levy, Editor, Smart Investing Daily | |
| Friday, August 13, 2010 11:46 | |
 The second week of August is proving to be a volatile one for the equity markets. After the Federal Reserve’s extremely unexciting intention to begin using the proceeds from maturing mortgage bonds acquired during the crisis to maintain its holdings of domestic securities around $2 trillion, the financial markets didn’t seem to react positively. That action was more of a prevention of monetary tightening versus true monetary easing, which many economists and traders still believe the economy needs. When you couple this lack of action with Wednesday’s worse-than-expected trade balance number and a slowdown in Chinese factory production, you had a recipe for disaster! Of course to top it all off, weekly jobless claims jumped to 484,000, not good… The S&P 500 (SPY, SPX) index violated some key short-term bullish indicators this week, which is one of the reasons we saw that sharp drop on Wednesday, which in turn pushed the index into negative territory for the year. The financial market remains in a fairly bearish long-term trend being that the 200-day simple moving average (currently about 1,115) is still above the current price of the index. That same moving average will be upside resistance for the broad market and a level we must break out of if we are going to see a change in trend.
Many of your brokerage accounts have been taking a beating and if you just chicken out (like we all do sometimes) and put your money in the bank, you’ll be lucky to get 1%, which is actually costing you money when you consider the average inflation rate of 3%+ over the past 10 years. |
Gold is on a Tear Again…
So the yellow metal is back on the upswing and so is the dollar. When you are buying gold, on some level you are getting short the U.S. dollar. But what if you want to remain long the dollar as well? As a result, any investment in gold itself may be tied to the dollar and its relative strength (or weakness) to other currencies, namely the euro, yen, pound, etc.
This negative correlation may theoretically reduce your potential profits, because the strong dollar negate some of gold’s rally in dollar terms The dollar represents the majority when it comes to liquid currency reserves, and the current global monetary system relies on the U.S. dollar as a reserve currency by which major transactions (gold included) are measured. This is the basic reason for this relationship.
Euro-denominated gold and its recent sharp rally have been in the news and the subject of blogs, chat and other coverage (aside from the rally in spot gold everyone is talking about).
Just yesterday, a colleague of mine on CNBC’s Fast Money, Dennis Gartman, talked about getting long gold in yen terms. On the show it seemed that everyone was baffled by his explanation of how to do this, so I thought I would share my thoughts about getting “synthetically” long gold in a dollar-neutral (vs. the euro) sort of way.
Please don’t take my words as a buy/sell/hold recommendation on Gold or any of the products mentioned. (Note: prices given as of Tuesday’s close).
One of the most popular ways for the retail trader to be long in Gold (other than the futures market itself) would be to buy the SPDR Gold Trust ETF (NYSE: GLD), which closed at $121 on Tuesday.
Long Calls in the Gold Trust
For options traders who want to synthesize a long position, one might choose an in-the-money call on the GLD. Let’s assume you bought 10 September 114 calls for $10.00 each. This would be an investment of $10,000 (the maximum loss in the trade) and would give you roughly 720 deltas in GLD. By taking this position, you are obviously taking a bullish position in gold itself. But let’s assume you thought the dollar would continue to strengthen against the euro. Any relative strength in the dollar might counteract natural price changes in gold unrelated to dollar changes. Because of this relationship, some traders may choose to neutralize that potential counteraction.
Balancing Out the Dollar/Gold Dichotomy
One way options traders can attempt to neutralize the impact of the dollar is to take a look at the Euros WCO ETF (NASDAQ: XDE). This is a euro/U.S. dollar ETF product offered by the NASDAQ OMX and ended yesterday’s session at $119.74.