Gold & US Dollar Tactics

1. The competition. You are long the Euro against USD. You are buying the Euro every 1 point down and selling every 3 up, with your trading position. Picture this situation: the euro rises 2 points from your buy, but then it looks bad. You get a sense of great discomfort, after reading a rumour that Goldman Sachs has apparently gone short the Euro, just as you’ve gone long! You think, “should I book profit now and outsmart my pre-set profit taking points?”
   
   
2. Now let’s look at “you” again. In the same situation. Only this time you are also short the euro in another account. Now the mental stress is off. You can wait for either the long or short position to hit it’s profit taking mark.
   
   
3. I already know your next question. It is: “OK, stewart, but how do I make money with this? What I’m making on one position, I’m losing on the other!”
   
   
4. Not so fast Sherlock….Yes, you are long and short at the same time, and at the same price entry points. But not in the same trade size.
   
   
5. This is exactly how the bankers operate. If gold is around 940, you can begin a buy and short program, both at 940, but the dollar value of the long positions must be greater than the short dollar value of the corresponding positions. I go into more detail on the ratios below.
   
   
6. Technical indicators can be of great assistance to you in setting up your buy/sell programs. Focus on general indications more than precise “buy” or “sell” points. Focus on a general 70% long exposure to any major mkt you target, so your buys are generally bigger than your sells. The overall long position must remain bigger than the short position 100% of the time, in all gold bull mkts.
   
   
7. I want to look at a couple of scenarios to build your positions. But rather than focusing on the euro, I want to focus on gold and the US dollar. With an eye to building a 70% long gold and 30% long US dollar. Here’s the weekly chart of the USD. It’s very oversold, so it could be an interesting time to look at working on USD with a professional pyramid buy program.



8. Just as I layer or “ladder” into positions in a technical pyramid formation, I use technical indicators the same way. Above you can see the 3 series of RSI all oversold, with the 4 series showing a possible upturn. The stochastics series are deeply oversold.
   
   
9. Here’s a second look at the chart, with the longer term MACD and TRIX indicators. Take a close look at the 4,8,9 series and the 7,14,9 series for MACD. They have already moved to buy signals. So has the 5,9 Trix. Notice how close price is to the green Keltner demand line. The keltner lines are like green river banks on the “price river”.



10. The key here is this, and this takes a touch of thought:
    
    
11. A USD buy signal is not a Gold sell signal. You sell gold ONLY to take profit on it, and do so into strength at a higher price than you paid. Not at a loss because the USD gives a buy signal. A USD buy signal is what it is: A signal to buy the USD and nothing else.
    
    
12. You could go for 70% long gold and 30% short gold, but that is far riskier than 70% gold, 30% USD. Remember, the 70% refers to a 70% maximum risk capital allocation to long gold positions, of a 100% “risk pot”.
    
    
13. I allocated aprox 1/3 of my gold risk capital to an inner gold core position, or about 30%. Any gold short positions I enter should never put me net short gold in a bull mkt. Not even close.
    
    
14. In practice, I rarely exceed 1/3 of my actual metals positions with shorts AND USD long positions combined, and if I do, it’s maybe by a couple of percentage points. I’m interested in making a real profit from the rises and falls in gold, but not in attempting to make all the theoretical money that can be made from a mkt swing.
    
    
15. Here’s the gold weekly chart, via IAU-n, the comex gold bullion ETF: