CHICAGO (
FuturesMag) -- In the modern age of interactive economic systems, cash is no longer king. Perhaps 40 years ago when the world was a bit more isolated, value could be stored in the president’s portrait. With today’s fluctuation, you need to revert to the one commodity that sustains and maintains value — gold. Gold will be over $1,200 by the time Santa arrives. Here’s why.
The world, upside down and inside out, will line up with a commodity that is perceived to be “sustainable” in value. When crises of recent proportions hit, that is the “go to” move. Crude oil is relatively new in the grand sche me of things.
Gold will always exist. The once and always shiny metal that has redeemed itself throughout the ages is more than capable of carrying the wealth through the new millennium.
The world wants what it knows and it will revert to that in times of stress. So when the U.S. government prints $1 trillion to cope with this fiasco then tries to sell it to the world, the world will look for something more stable. Once again, it is a matter of supply and demand. When the two Germanys unified, they replaced the East German currency with the West German mark. What happened? More marks, less value per mark.
Enough with fundamental theory. Let’s move into the technicals . Traders generally follow basic patterns and averages with a few tweaks they believe will give them an edge over their peers. Others simply look for a trend. In this sense, gold has definitely struggled with the 100- and 200-day moving averages.
Long-term players are hesitant to commit until these are broken conclusively. This battle raged from mid-September to the first of October. The Fibonacci players were prominent factors in this two-week conflict. The high from July 15 and the low from Sept. 11 are the levels I am using to factor my Fibonacci readings (see “When to buy?”). Retracement levels are the battleground, but this is simply one reason for the hesitancy of long-term bulls. As a short-term play, those levels have proven to be the focus. However, with the 18-day moving average crossing over the top of the 45- day on Oct. 1, the bulls reemerged.
I am not throwing Fibonacci out, I just believe the retracement resistance levels have been played out. Short-term trading can rely on one simple act by one individual. Long-term moves are subject to a conglomeration of instances combined.
Our initial long came Oct. 1 as the 18-day moving average crossed above the 45-day. As long as gold remains above the 45-day, it is a buy. The next strong buy signal will come when gold takes out the recent high of $932. That will push it above the 61.8% Fibonacci retracement level of the aforementioned move as well as the 100- and 200-day moving averages, which would act
as support.
That said, simply getting long gold is not a viable strategy unless you have deep pockets. Conservative traders should consider a vertical bull call spread. Buy the February $1,000 call and sell the $1,200 call at $2,800 or better. This limits your downside and provides a potential net profit of $20,000, a solid risk/reward ratio. You can enjoy your Christmas holiday with a known risk and if correct, there will be more than coal in your stocking when those options expire at Christmas time.
If you need to envelop an investment strategy to sustain wealth during this time of upheaval, I suggest looking to the pharaohs and emperors, who always knew that gold is golden.
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J.B. Siewers is a broker with introducing broker Ira Epstein and has more than 15 years of experience on the trading floor.
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© Futures Magazine, 2008. News, analysis and strategies for futures, options, forex and stock traders. Established in 1972, Futures Magazine is the oldest and largest circulation publication serving the derivatives industry. Futures Magazine is a sister company to Resource Investor.
