Sunday, 13 January 2013

Trade idea

A potential trade idea...

This following chart covers from May 2012 and is;

Gold futures on top
Dollar Index futures in the middle
At the bottom is the notional value of a Mini-Gold future and Dollar Index future added together (achieved by going long each contract)

What's interesting here is that, were you only looking at the top two charts you could ascertain that Gold was going through a phase of outperforming the dollar from August until the start of October however by including the chart at the bottom it's more easy to discern that in fact that Gold has been outperforming the dollar since July onwards (on the bottom chart there was a lower high confirmed at the end of June).

As mentioned previously I've been considering a long in Gold futures however it would appear a more measured (and less risky) approach would be to engage the market by going long a Mini-Gold future AND a Dollar Index future.  It's nicely balanced in the sense that the notional value of a Mini-Gold contract is $83,500 and the notional value of a Dollar Index contract is $79,600.  It appears as though a higher low on the bottom chart may be about to form, suggesting an opportune moment to get into the market using this trade.  I'll watch to see how this scenario develops for now.

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