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TOMMY XAU | BASIC MARKET STRUCTURE Good afternoon gold gang! Thought id jump on here to talk to you about basic market structure, as its the basis for any strategy and super important to learn. We can identify that the market moves 3 ways .. up trend down trend sideways (consolidation) I prefer to trade when the market is trending in either direction. I determine this by looking at the monthly and weekly candles. In a trending market, i am looking to identify areas that the market can reverse from. If we are making a higher high for example .. I can identify that price is likely to pull back down to the key level it started its ascent from. From there i can wait for confirmations on the lower time frame to take a trade in the direction of the trend. obviously this doesnt work everytime .. news etc .. but its always good to have it in the back of your mind the phase of the market you are currently in. you will find with my strategy .. that price will make new structure points around my key levels ( the ones i place on my chart) Hope this helps some of you out .. back to basics is sometimes the way to go if you are getting overwhelmed with information Have a great sunday and see you tonight for the outlook tommy
OANDA:XAUUSDEducation
by tommyXAU
2
💰 Exploring the Potential of Investing in Precious Metals.Throughout the ages, the allure of rare and captivating metals like gold, silver, platinum, and palladium has remained unwavering. Their scarcity, exquisite aesthetics, and enduring nature have made them objects of desire. While these metals are commonly associated with ornamental jewelry, their utility extends far beyond adornment, finding applications in various industrial and technological realms. Moreover, precious metals have long been regarded as a safeguard against inflation and a sanctuary for investors amidst economic upheaval. Consequently, the trading of these invaluable commodities has evolved into a pivotal component of the global financial landscape, witnessing the exchange of billions of dollars each passing day. In this exposition, we embark upon an exploration of the fundamentals of precious metals trading: the mechanisms at play, the influential factors shaping prices, and the diverse avenues through which investors can partake in this exhilarating and ever-evolving marketplace. The vast realm of metals is neatly divided into two distinct groups: ferrous and nonferrous. The former encompasses iron, manganese, and chromium, although experts occasionally question the inclusion of the latter metal. This classification extends to alloys containing elements from these primary ferrous metals. Understanding Precious Metals From an official statistical perspective, ferrous metals command an overwhelming share, reaching up to 90%. One would naturally assume that such metals enjoy significant demand on stock exchanges. However, in reality, a majority of transactions occur outside the realm of these exchanges, transpiring directly between buyers and sellers. Consequently, the ferrous metals market and its liquidity do not boast the most favorable conditions. Within this category, certain metals hold a prominent position in exchange trading, namely: gold, silver, platinum, palladium, copper, aluminum, zinc, and nickel. Amongst these, gold and silver reign as the favored choices among traders and investors. To comprehend the market of precious metals in its entirety, it is imperative to examine it through two essential lenses: the functional aspect and the institutional perspective. Ultimately, the market represents a harmonious amalgamation of diverse spheres, encompassing not only extraction, production, and processing but also the final sale to consumers. The price of precious metals is subject to the influence of various factors, encompassing: Supply and demand dynamics: The fundamental principles of supply and demand exert a significant impact on precious metal prices. Limited supply coupled with high demand typically drives prices upward. Economic indicators: Economic data, including inflation rates, interest rates, and GDP growth, can shape the price trajectory of precious metals. For instance, during periods of elevated inflation, investors often seek refuge in precious metals as a store of value, leading to increased demand and subsequent price appreciation. Geopolitical events: Geopolitical occurrences like wars, trade conflicts, and political instability have the potential to sway precious metal prices. When geopolitical tensions escalate, investors frequently turn to precious metals as a safe haven, fueling demand and subsequently driving prices higher. Currency fluctuations: Since the price of precious metals is commonly denominated in US dollars, fluctuations in currency value can impact metal prices. For instance, if the US dollar strengthens, precious metal prices may experience a decline as they become relatively more expensive for buyers using other currencies. Investor sentiment: The sentiment and outlook of investors can play a vital role in shaping precious metal prices. Bullish sentiment may lead to increased buying activity, resulting in price surges. Conversely, bearish sentiment may prompt investors to sell their holdings, leading to price declines. To summarize, the price of precious metals is influenced by a multifaceted interplay of factors, ranging from the core dynamics of supply and demand to geopolitical events and currency fluctuations. Investing in precious metals offers several avenues for investors to participate in the market. Here are three of the most popular approaches: Stocks: Investors can purchase shares in mining companies engaged in the extraction of precious metals like gold, silver, platinum, and palladium. The stock prices of these companies often correlate closely with the underlying metal's price, as their profitability is tied to production costs and market demand. Exchange-Traded Funds (ETFs): Precious metal ETFs enable investors to buy shares in a fund that holds physical precious metals, such as gold or silver. These funds aim to track the price movements of the respective metal, providing a convenient means of exposure to the market without the need for physical storage and transportation of the metals. Contracts for Difference (CFDs): CFDs are financial instruments that allow investors to speculate on the price fluctuations of precious metals without owning the physical metal itself. By entering into a contract with a broker, investors can buy or sell the metal at a predetermined price on a future date. CFDs are a more speculative approach, involving leverage and potentially significant losses if the metal's price moves unfavorably. The potential earnings from trading precious metals can vary greatly and are highly dependent on individual factors and market conditions. It's important to note that trading in precious metals can be subject to volatility and fluctuations, and there are no guarantees of specific earnings. While gold and silver have demonstrated a long-term upward trend, it is crucial to approach trading with realistic expectations. Over the long term, precious metals have historically shown the potential for favorable returns. However, short-term gains can be less predictable. It's important to have a long-term perspective and not expect significant profits within a short period. Patience and a strategic approach are key when investing in precious metals. It's worth mentioning that the scarcity of precious metals, especially gold, has a significant impact on their value. As the available supply diminishes over time while demand remains steady or increases, the price per unit tends to rise. This trend is driven by the basic principles of supply and demand. In summary, while precious metals can offer good returns over the long term, it's important to manage expectations and understand that substantial earnings may take years or even decades to materialize. Investing in precious metals offers both advantages and disadvantages. Here are the key pros and cons to consider: Advantages: Safe haven investment: Precious metals, particularly gold and silver, are often viewed as safe haven assets during economic uncertainty or market instability. They can act as a hedge against inflation, currency devaluation, and geopolitical risks. Diversification: Precious metals provide diversification benefits to an investment portfolio. They have a low correlation with traditional assets like stocks and bonds, which can help reduce overall portfolio risk and enhance stability. Tangible assets: Precious metals are physical assets that can be held directly, offering a sense of ownership and security for some investors. Having tangible assets can also provide a potential alternative during times of financial crisis or disruptions in the banking system. Disadvantages: Volatility: Precious metal prices can be highly volatile, experiencing significant price swings within short periods. This volatility can pose risks, especially for short-term traders or those seeking quick profits. Limited income potential: Unlike stocks or bonds, precious metals do not generate income through interest payments or dividends. Their value primarily relies on price appreciation, which may limit their long-term growth potential compared to income-generating investments. Storage and insurance costs: If investing in physical precious metals, storage and insurance expenses can add to the overall costs of ownership. Proper storage facilities and insurance coverage are necessary to protect the value of the assets, which can eat into potential returns. Market manipulation concerns: Critics argue that the precious metals market may be susceptible to manipulation by large players or governments, potentially leading to artificial price movements that may not reflect true supply and demand dynamics. It's important for investors to carefully weigh these advantages and disadvantages, taking into account their financial goals, risk tolerance, and the broader investment landscape. Consulting with a financial advisor or conducting thorough research is recommended before making any investment decisions in precious metals. Are Precious Metals A Good Investment For You? Determining whether precious metals are a good investment for you requires considering various factors such as your financial goals, risk tolerance, and investment timeframe. Here are some key points to consider: Diversification: Precious metals can serve as a valuable component of a diversified investment portfolio, as they often have a low correlation with other asset classes. This diversification can help mitigate risk and stabilize portfolio performance. Inflation protection: Precious metals are historically considered a hedge against inflation since their value tends to rise when the purchasing power of fiat currencies declines. If protecting against inflation is a priority for you, investing in precious metals could be advantageous. Volatility: It's important to recognize that precious metals can experience significant price volatility, which may not align with the risk tolerance of every investor. If you are uncomfortable with substantial price fluctuations, other investment options may be more suitable. Liquidity: Precious metals generally offer high liquidity, meaning they can be easily bought or sold on major exchanges. This accessibility allows for flexibility and quick access to funds when needed. Long-term perspective: Investing in precious metals, particularly gold, often yields gradual and steady returns over the long term. Patience is crucial when investing in these assets, as their growth tends to occur gradually rather than in short-term bursts. Considering these factors, it is recommended to conduct thorough research, assess your individual circumstances, and consult with a financial advisor before deciding if precious metals are a suitable investment for you.
OANDA:XAUUSDEducation
by FOREXN1
9
Exploring Seasonality in Crude Oil PricesWhat rises, must fall. What comes down, goes up again. This rings most true for crude oil prices. Both secular and seasonal trends are at play in crude oil prices. Demand for oil moves in tandem with global economic activities. Key secular trends impacting oil markets over this decade was covered in our previous paper . These range from falling demand from developed markets, and rising demand in emerging economies, among others. While secular trends unravel over a longer time, seasonal cyclical effects can be observed over a short term. This paper will explore consumption patterns driving annual seasonality in crude oil prices. In Part two of this paper, we will illustrate trading crude oil derivatives to harness opportunities arising from seasonality. CRUDE OIL SUPPLY CHAIN: AN OVERVIEW Gluts and shortages, economic growth and contractions, and geopolitics impact crude oil prices. Different events impact various segments of the supply chain. The global crude oil supply chain is complex and intricate. It can broadly be classified into Upstream, Midstream, and Downstream. Upstream and midstream sectors drive crude oil supply. Upstream outage or shortage affects available supply which are sometimes evened out by the midstream through adequate inventories. Downstream and midstream drives demand. End consumer demand is observed in distribution. Refineries adjust output based on their margins which in turn is derived from crude oil prices and refined product prices. WHAT DRIVES SEASONALITY? Seasonality in demand for refined products impact crude oil prices. Higher demand for refined products (gasoline, diesel, and kerosene) is observed in summer because of travel. While lower supply is caused by maintenance linked pauses in downstream during winter. Crude oil inventory shifts can be segmented into four phases, namely: (1) Inventory Build Up (Feb - May), (2) Summer Travel Spikes Demand (Jun - Aug), (3) Demand Shrinks & Supply Contracts (Sep - Nov), and (4) Winter led demand spike (Dec - Jan). This seasonality is evident in US crude oil inventory shifts as exhibited below. Impact of seasonality is not always directly apparent or predictable. Why? Crude oil is so deeply intertwined with global economics. Shocks, if any, can have an outsized impact on prices and volatility. Also, supply cuts from majors oil producers and GDP shifts in major consumers have jumbo effect on prices. Consequently, other factors moderate or nullify impact of seasonality. The below chart shows the average price behaviour of Crude oil from the start of each year over the past twenty (20) years by using CME front month crude oil futures price data from TradingView. Orange bars in the above chart represents average monthly price change measured over last twenty years. Meanwhile, the white bar shows monthly price change for the same period but after excluding the outliers. Outlier years include 2008 (global financial-crisis), 2020 (pandemic), and 2022 (Russia-Ukraine conflict). Crude prices go bullish on higher demand by refineries starting in March and continue to rise through the summer months as demand for refined products remains high driven chiefly by increased travel. However, by August, sufficient refined product inventories dampen demand. With refineries slowing for maintenance, crude demand declines leading to a moderation in price. Finally, a small uptick is observed in December as demand starts to rise again during peak winter. The average monthly returns for each month are displayed below. However, note that the standard deviation for these averages is non-trivial indicating that month-of-the-year effect on crude oil prices is uncertain and, in many cases, statistically insignificant. This conclusion is also arrived at based on various academic research papers. METHODS TO HARNESS CRUDE OIL SEASONALITY Three most common methods to harness gains from seasonality include: a. Futures (highest upside and highest downside), b. Call options (upside limited relative to futures and limited downside risk), and c. Call and/or Put Spreads (limited upside and limited downside). Traders can deploy options to express a directional view with unlimited upside and limited downside. In a long options position, the downside is limited to the premium paid. Conversely, a short position in options involves selling an option. This offers upside limited to the premium collected but exposed to unlimited downside. TRADE SET UP ILLUSTRATIONS From July until November, based on historical observations over the last twenty years, crude oil prices tend to fall. We could set up a trade using the December contract month of CME Micro Crude Oil Futures which expires on Nov 17th: 1. Short Futures: Short Futures position in MCL Dec 2023 contract (MCLZ3) at USD 70 per barrel with the anticipation that prices will fall by November. 2. Long Puts: Long Put options on MCLZ3 at a strike of USD 69 per barrel with a hypothetical options premium of USD 3 per barrel. 3. Bear Call Spread: Bear Call Spread with a net premium of USD 1 per barrel on MCLZ3 comprising of a short call option at a strike of USD 71 a barrel (collecting options premium of USD 5 per barrel) and a long call option at a strike of USD 73 a barrel (paying options premium of USD 4 per barrel). The Bear Call Spread profits a fixed amount equal to the net premium when both options expire out of the money. When only the short call options expires in the money, the position loses by having to pay the options buyer. However, when both options expire in the money the profit from the long option partially offsets this loss resulting in a capped downside. Each CME Micro Crude Oil Futures contract represents one hundred barrels of crude oil. Accordingly, the above three trade set ups are illustrated across various price scenarios as shown below. Please note that these illustrations do not include (a) transaction costs comprising of exchange trading and clearing costs and brokerage fees, and (b) capital costs associated with margins required for establishing these positions. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
NYMEX:CL1!Education
by mintdotfinance
4
Target reached! Crude Oil ReviewPrice bounced strongly above the 67.31 support level towards our take profit target - but how did we do it? Join Desmond in this analysis review where he covers the reason why this setup worked nicely. Please be advised that the information presented on TradingView is provided to FXCM (‘Company’, ‘we’) by a third-party provider (‘Name of third party provider). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Name of third party provider. The speaker(s) is neither an employee, agent nor representative of FXCM and is therefore acting independently. The opinions given are their own, constitute general market commentary, and do not constitute the opinion or advice of FXCM or any form of personal or investment advice. FXCM neither endorses nor guarantees offerings of third party speakers, nor is FXCM responsible for the content, veracity or opinions of third-party speakers, presenters or participants. High Risk Investment Warning Trading Forex/CFDs on margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you. Forex Capital Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. FXCM EU LTD (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. FXCM Australia Pty. Limited (www.fxcm.com): ** Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763), please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com FXCM Markets LLC (www.fxcm.com): Losses can exceed deposits.
FX:USOILEducation
by FXCM
Target Reached! XAGUSD ReviewPrice reversed strongly from our resistance level to the support level at 22.20. But how did it happen? Join Desmond in today's analysis review to have a quick recap on the elements that led to this strong reversal. Please be advised that the information presented on TradingView is provided to FXCM (‘Company’, ‘we’) by a third-party provider (‘Name of third party provider). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Name of third party provider. The speaker(s) is neither an employee, agent nor representative of FXCM and is therefore acting independently. The opinions given are their own, constitute general market commentary, and do not constitute the opinion or advice of FXCM or any form of personal or investment advice. FXCM neither endorses nor guarantees offerings of third party speakers, nor is FXCM responsible for the content, veracity or opinions of third-party speakers, presenters or participants. High Risk Investment Warning Trading Forex/CFDs on margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you. Forex Capital Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. FXCM EU LTD (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. FXCM Australia Pty. Limited (www.fxcm.com): ** Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763), please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com FXCM Markets LLC (www.fxcm.com): Losses can exceed deposits.
FX:XAGUSDEducation
by FXCM
The Dangers of Giving Up Too Soon on a Trading Strategy There are hundreds of different strategies to trade. Some of them are losing ones, some provide modest results and some strategies are very profitable. Novice traders often struggle to find the right strategy that suits their personality, financial goals and risk appetite. Unfortunately, they also tend to make some common mistakes that can undermine their performance and confidence. ❌ One of the biggest mistakes that they make in their search is that they give a strategy a very short trial period. It simply means that they are trying to assess the validity of the strategy, trading that for a very short time span (usually a day to a week). Please, realize the fact that the performance of the strategy can be measured only with extended backtesting - meaning that the strategy should be tested on multiple financial instruments and for a long period of time and applying multiple evaluation metrics. Moreover, if the strategy proves its efficiency on backtesting, it should be traded on a demo account at least 2 months before the valid performance can be calculated. ❌ Another common mistake is that many traders drop the strategy once it starts losing. And by losing, I mean just 2–3 trades in a row. Newbies are searching for the approach that never loses. They may even abandon a trading strategy once they catch JUST ONE bad trade. ✅ In contrast, a smart trader realizes that one bad trade does not define the performance of the strategy. Moreover, such a trader calmly faces the losing streaks and sticks to the strategy. Take a look at that picture. On the top, we have the traits of a newbie trader and his equity curve. He abandons the strategy after he faces the loss, not giving the strategy a chance to recover. When he changes the strategy, he starts recovering a little bit and a losing period follows. He drops a strategy again, and he keeps following this vicious cycle till his entire account is blown. On the bottom of the picture, we see the equity curve of a smart trader. Even though he faces losses occasionally, his strategy always gives him a chance to recover and with time his trading account steadily grows. Please, realize the fact that a perfect strategy does not exist. You will lose the money occasionally anyway. What distinguishes a smart trader from a dumb one is his discipline and trust to his trading system and willingness to face losses. ❤️Please, support this video with like and comment!❤️
FOREXCOM:XAUUSDEducation
by VasilyTrader
9
The Gold Standard and the Global Monetary SystemI. Introduction The history of international monetary systems has been a story of constant evolution. Of the many systems that have been used over the centuries, the Gold Standard stands out for its longevity and its critical role in shaping the world's economic landscape. This essay will first discuss the Gold Standard, then delve into President Richard Nixon's monumental decision to sever the tie between the U.S. dollar and gold, known as the 'Nixon Shock.' This discussion will segue into the subsequent transformation of the global monetary system, culminating in an analysis of our present-day monetary era. II. The Gold Standard Era The Gold Standard, which flourished between the late 19th century and the early 20th century, was a monetary system where the value of a country's currency was directly linked to gold. Each country promised to convert its currency into a fixed amount of gold upon demand. This system provided a stability that fostered international trade and investment, as it offered predictability of exchange rates and a constraint on inflation. However, it also meant that national monetary policies were subordinated to the need to maintain gold parity, thereby constraining a government's ability to respond to domestic economic conditions. III. Nixon's Depreciation and the End of the Gold Standard In 1971, amidst growing economic pressures, President Richard Nixon declared that the United States would no longer exchange gold for U.S. dollars held in foreign reserves, effectively ending the Gold Standard. This move was initially designed as a temporary measure to protect U.S. gold reserves, which were dwindling due to persistent trade deficits. However, the 'Nixon Shock' proved to be a permanent shift in international monetary policy. Nixon's move unshackled the U.S. dollar (and other global currencies) from the constraints of gold, allowing for more flexible monetary policies. This change allowed governments to respond more efficiently to economic downturns by manipulating the money supply. Yet, it also introduced a new era of exchange rate volatility and inflation risk, challenges that economies continue to grapple with today. IV. The Transformation of the Global Monetary System The end of the Gold Standard marked the transition to the era of fiat money—currency that is backed by the full faith and trust in the government that issues it, rather than a physical commodity like gold. Fiat money systems have provided governments with greater flexibility to manage economic conditions through monetary policy, as they can adjust the money supply to influence interest rates, manage inflation, stimulate growth, or address economic crises. However, the reliance on faith and trust in the government has also led to episodes of hyperinflation and economic crises in countries where that faith was misplaced or abused. V. The Present-day Monetary Era In the current monetary era, central banks, like the Federal Reserve in the U.S., use open market operations and other monetary policy tools to control the money supply and influence economic conditions. Decoupling from gold has also facilitated the rise of digital currencies and novel monetary ideas like cryptocurrency, reshaping our understanding of money and value. However, this freedom has its downsides; the absence of a physical constraint like gold can lead to fears about runaway inflation, especially in times of significant increases in the money supply, such as the response to the COVID-19 pandemic. VI. Conclusion The Gold Standard, Nixon's Shock, and the transformation of the global monetary system offer key insights into the strengths and weaknesses of different monetary systems. While the Gold Standard provided a stability that fostered international trade, it limited the ability of governments to respond to domestic economic conditions. The Nixon Shock and the transition to a fiat money system have provided greater flexibility, but also introduced new challenges in terms of inflation risk and exchange rate volatility. As we navigate our present-day monetary era, it is essential to remember the lessons of the past while staying open to new innovations and ideas in our ongoing quest to develop a monetary system that best serves the needs of society.
FX_IDC:XAUUSDEducation
by financialflagship
Unveiling the Impact of #FOMC Decisions on #WTI, #Gold, #USD Today was #FOMC! I'm Sure most of us had same experience on BLACKBULL:WTI and $OANDA:XAUUSD. I Just wanted to write about What is #FOMC and It's impact on #WTI, #Gold and #USD, Maybe somebody has lots of questions about that, so I try to do my best regarding captioned subject. The Federal Open Market Committee (#FOMC) plays a crucial role in shaping monetary policy in the United States. The decisions made by this committee have significant implications for various financial markets, including commodities like West Texas Intermediate (#WTI) crude oil, #gold, and the U.S. dollar (#USD). Understanding the impact of FOMC decisions on these assets is essential for traders, investors, and market participants. The FOMC's Role and Decision-Making Process: The FOMC is composed of members from the Federal Reserve System who are responsible for setting monetary policy. These members regularly convene to assess economic conditions, review data, and deliberate on the best course of action. One of the most critical outcomes of these meetings is the announcement of the federal funds rate, which influences borrowing costs and has a broad impact on the financial landscape. BLACKBULL:WTI : FOMC decisions have a notable impact on WTI crude oil prices. Changes in interest rates directly affect borrowing costs for businesses, which, in turn, influence their operations and investment decisions. When interest rates decrease, economic growth is often stimulated, leading to increased demand for oil and potentially driving up prices. Conversely, an increase in interest rates may have the opposite effect, dampening economic activity and reducing oil demand. Additionally, FOMC decisions indirectly impact WTI crude oil prices through their effects on the U.S. dollar. Since oil is globally priced in dollars, fluctuations in the dollar's value can influence the purchasing power of oil-importing countries. A weaker dollar can make oil relatively cheaper, increasing demand and potentially bolstering #WTI prices. OANDA:XAUUSD : The relationship between FOMC decisions and gold prices is complex and multi-faceted. Gold is often considered a safe-haven asset and a store of value during times of economic uncertainty. When the FOMC adopts a dovish or accommodative monetary policy stance, such as lowering interest rates or implementing quantitative easing measures, it diminishes the attractiveness of holding U.S. dollars. Consequently, investors may seek refuge in #gold, leading to an increase in gold prices. Conversely, a hawkish stance by the FOMC, signaled by raising interest rates or indicating tighter monetary policy, can strengthen the U.S. dollar and exert downward pressure on #gold prices. As interest rates rise, the opportunity cost of holding gold, which does not yield interest or dividends, increases. This can make alternative investments more appealing, potentially reducing demand for gold. PEPPERSTONE:USDX : FOMC decisions have a direct and significant impact on the value of the #USD. Changes in interest rates influence the relative attractiveness of U.S. dollar-denominated assets, which in turn affects currency exchange rates. A rise in interest rates can make the #USD more appealing to investors seeking higher yields, potentially strengthening the currency. Conversely, a reduction in interest rates may lead to a decline in the value of the U.S. dollar. Moreover, FOMC decisions and accompanying statements provide insights into the central bank's economic outlook. Favorable economic projections and indications of a tightening monetary policy can bolster confidence in the #USD. Conversely, cautious or pessimistic remarks may weaken the currency. Final Words: FOMC decisions have a substantial impact on #WTI crude oil, #gold, and the value of the #USD. Changes in interest rates directly influence borrowing costs, economic growth, and investment decisions, thereby impacting #WTI crude oil prices. Additionally, the effects of FOMC decisions on the U.S. dollar indirectly influence #WTI crude oil This article serves as a comprehensive guide, offering valuable insights that will enhance your understanding of the FOMC and its impact on financial markets AND May your journey through the intricacies of the FOMC empower you with a solid strategy and guide you towards successful trades, or encourage you to exercise caution and refrain from trading during these significant events. Wishing you the best of luck in your endeavors!
BLACKBULL:WTIEducation
by POUSHEINI
Preserving Your Capital Like A ChampIn the world of trading, effective trading capital management can mean the difference between success and failure. We cannot stress enough how critical this aspect is to long-term success. Today we will delve into the importance of managing your trading capital, the various strategies employed by many successful traders, and how you can implement these techniques to safeguard your investment and maximize profits. Understanding the Importance of Trading Capital Management Trading capital refers to the amount of money allotted for the purpose of trading your desired market. Proper management of trading capital is crucial for traders, as it helps them minimize losses and in turn, maximize profits. In essence, trading capital management is all about striking the right balance between taking risks and preserving your hard-earned money. One key aspect that differentiates successful traders from gamblers is their mindset. Gamblers tend to chase big wins, hoping for a life-changing payout, while traders focus on consistently generating small, predictable returns over the long term. Don’t get us wrong, big wins can and do happen, and they feel great when they do. Think of trading as a really long boxing match. It's rare and impractical for a boxer to believe they can knock out their opponent by flying out of a corner with no defense and going straight for a haymaker each time. The foundation for success takes many consistent jabs, and an unwavering defense, much like trading. Traders who want to be long-term successful will prioritize risk management and capital preservation, ensuring that they can continue trading even after incurring losses so they can pursue consistent profits. The Struggle is Real For New Traders New traders often find difficulty in managing their trading capital effectively. This is primarily due to their focus on making profits rather than minimizing risks. The desire to make money can lead to taking unnecessary risks, which can result in significant losses. It is crucial to remember that every loss must be recovered through a profitable trade to regain lost ground. So why not implement strategies that mitigate that lost ground in the first place? Strategies To Adopt for Long-Term Success So, what are some of the techniques that successful traders use to optimize their chances of consistent profits in the markets? Here are a few suggestions to improve your trading capital management: Implementing Stop-Loss Orders Always trade with a stop-loss. There are countless ways to implement a stop-loss, and we covered this in great detail in a previous article that is linked below. A stop-loss order allows you to specify a price at which your trade will be automatically closed if the market moves against you. This is the most practical and easily enactable capital management technique you can use. Some would consider trading without a stop-loss to be one of the cardinal sins of trading, as it prevents you from managing risk effectively. Utilizing Reward Risk Ratios (RRR) Every trade carries the risk of making a loss. Successful traders assess their potential trade risk and potential reward before entering a position. Utilizing reward-to-risk ratios may seem complicated, but it doesn't have to be. Many traders will often aim for a reward that is twice their risk or a ratio of 2 to 1. So in theory for every $1 you risk you aim to make $2 in profit. Your RRR can also help you understand what your theoretical minimum win rate would need to be a profitable trader. Utilizing this information is very handy when backtesting and forward-testing your strategy. In the early stages of a trader's journey, we highly recommend to keep a trading journal to keep track of these metrics. Keeping track of your wins and losses and keeping your RRR consistent offers deep insight into whether you are on the right path to consistency. Managing Your Money How much capital are you risking per trade? It's difficult to predict which trades will be profitable, but it's essential to risk a consistent amount on every trade. Coupled with an appropriate risk-to-reward ratio, this approach can help protect your trading account. For example, consider risking only 1-2% of your total trading portfolio on each individual trade with a maximum overall of 10% among your trades. This may not seem like much, but if you can remain disciplined with your stop losses and RRR you greatly increase the odds of success. If you have a small account don’t sweat it. It will help you grow that account size and compound those gains in a stable fashion that would outlast the method of throwing your entire account into each trade. Hedging Holding long and short positions on various assets in different sectors can help protect against any aggressive moves that affect the market as a whole. For instance, if there was a sudden 'flash crash,' the traders who solely went long would experience a loss or a potentially significant loss without proper risk mitigation. However, if you held both long and short positions, you could have made profits to offset the losses. Obviously, market events are hard to account for, but hedging can be a useful capital preservation strategy. Focusing on a Single Asset to Limit Risk Exposure Some traders prefer to concentrate on trading one asset to minimize risk exposure. This can be effective, especially when the trader has in-depth knowledge of the specific asset being traded. The potential downside is that this can limit your trading opportunities, but we highly advise this approach for new traders. Focusing on one asset can help you grow your experience and hone your strategy through a rigorously disciplined approach. Consistency in Risk and Money Management There is no one-size-fits-all approach to trading, and that's part of the beauty of it all. A strategy that works for one trader may not work for another. The key to improving your trading strategy is to adopt a disciplined approach to risk and money management. While this approach may not be as flashy as some in the trading community portray, consistently minimizing risk is an essential aspect of enhancing overall profitability and is a massive attribute to long-term success. Final Thoughts on Trading Capital Management Effective trading capital management is crucial for success in the world of trading. By adopting a disciplined approach to risk and money management, traders can minimize losses, maximize profits, and safeguard their investments. The techniques discussed – implementing stop-loss orders, utilizing reward-to-risk ratios, managing money, and diversifying trades – are all essential components of a successful trading capital management strategy. Remember, the key to success in trading lies not in chasing the knockouts but rather by consistently landing the jabs while maintaining a stout defense. By following these strategies adopted by long-term, successful traders and focusing on preserving capital, you can improve your chances of obtaining that same long-term success in the markets.
NASDAQ:MSFTEducation
by LeafAlgo
Exploring Leverage in Gold and Forex Trading 💰 Leverage is an essential tool in trading gold and forex. It enables traders to control larger positions with minimum initial capital. However, it also carries a high degree of risk as one can experience significant losses if the market moves against them. Here are some things to consider about leverage in trading gold and forex: • Leverage is the ratio of the amount one can borrow and the amount of capital invested. For instance, if a trader chooses a 50:1 leverage, then they can trade up to 50 times more than their initial capital. • While leverage allows traders to profit immensely from small market moves, it also magnifies losses if the market goes in the opposite direction. • Even experienced traders can fall prey to leverage's pitfalls, so it's crucial to understand the risks and manage them effectively. • Traders must calculate their risk-reward ratio before initiating a trade that involves leverage to help minimize losses and improve returns. • Stop-loss orders can help traders to manage their risk in case of unexpected market movements. • It is essential to have a solid trading plan that includes entry and exit strategies, trading goals, and risk management strategies. • Traders should choose a broker that offers favorable margin requirements and instant trade execution. In conclusion, leverage can be a useful tool in trading gold and forex, but it is not suitable for everyone. Traders must carefully evaluate their risk tolerance and have a well-defined trading plan before employing leverage. Please, like this post and subscribe to our tradingview page!👍
BITSTAMP:BTCUSDEducation
by EliteTradingSignals
4
My simple 1 minute strategy (tutorial) My super simple 1m chart hyper scalping strategy that has been killing it for the last couple of weeks .. enjoy. Whats up gold gang .. thought id hop on here with a tutorial on how i trade my key levels on the 1 min chart. Firstly, this is a no bias strategy .. so we can take buys or sells depending how price reacts at the levels. High volume is a must here so around market opens is best. 1. Let price hit the key level. 2. if price is breaking through, wait for a 1 min candle to close and enter in that direction. 3. 10 pip TP 10 pip SL (or as close to the top of the previous candle as possible) 4. SL to BE if you like and hold for runners to target. I like to come out fully at 1:1 5. reversals .. price must print a candle in the opposite direction engulfing the previous. Enter on the break of the previous. 1:1 thats it. Super simple. It sounds dumb and too good to be true but i have been collecting the data and its working so far. I cant post a chart example on the 1m time frame to show you but ill post elsewhere so you can see. Try it yourselves with low lot sizes and see how it works for you. If not, you can trade the way i normally do waiting for 30m candles to close in the zones. Have a great holiday weekend .. please like this and comment if you need further help. Dont forget to follow along for constant XAUUSD updates tommy
OANDA:XAUUSDEducation
by tommyXAU
8
My A+ Trade Set Up when trading XAUUSD (Educational)Whats up gold gang! .. thought id drop in to show you how i enter my trades when they enter my zones. I set alerts here on trading view, then when price is approaching my zone, i get to the computer and lock in Im looking for a clean break into the zone with a strong candle on the 15/30/1h That candle must close Next candle to open and do a small pull back to create a wick. This says to me no buying pressure is present. Entry on the flip of the candle and break of previous candle Target is placed. Stop loss above previous candle high. Anything above that is invalid. Of course i do things to manage risk and increase reward as the trade is moving, but they are personal to me. You will all have your own risk parameters im sure. Thats it gang .. very simple, but as you can see .. very effective. My zones work on any strategy, you could us smart money concepts, fibs, support resistance etc .. they will all work with my directional bias. Hope this was helpful .. leave a like if it was and follow along for more XAUUSD updates tommyXAU
OANDA:XAUUSDEducation
by tommyXAU
2
A Primer on Soybean Crush SpreadSoybeans are one of the most versatile and important agricultural commodities in the world, consumed extensively by humans, livestock, and industry. Soybean prices have an undeniable impact on the global economy and their importance is only increasing with the rapidly growing bio-diesel industry. In our previous paper Heavy Exports Weighing Down Soybeans , we described factors affecting the supply of Soybean and their seasonality. Supply is largely driven by harvest cycles and crop yields. Demand can shift for multiple reasons. Live stock feed, Cooking oil and Biodiesel form the largest demand source for Soybean. These are all derived from the two by-products of Soybean – Soybean Meal (“Meal”) and Soybean Oil (“Oil”)). During Soybean processing, the seed is crushed to separate the oil from the meal. These by-products can be traded as separate commodities. Traders can harvest gain from the shifting relationship between the by-products and soybean using the crush spread. This paper will describe the crush spread, its computational methodology, and the methods for investors to harvest gains from it. The paper will also look into the factors defining the crush spread in 2023. The Crush Spread The Soybean crush spread refers to the value of Soybean’s gross processing margin, which is the difference between the value of the outputs (Meal Price + Oil Price) and the value of the inputs (Soybean Price). The crush spread is traded on the cash and futures markets and is often used by Soybean processors to hedge their margins for the actual process. It can also be used to harvest gains from the shifting dynamics between Soybean and its byproducts. Factors That Affect the Spread The crush spread can be influenced by the price of soybeans, the demand for its byproducts and the cost of production. Production costs can vary due to energy prices, labor conditions, carryover stock, and health of supply chains. Demand for by-products is driven by some common factors such as macro-economic conditions but also by factors unique to each commodity. Meal is used for livestock feed while Oil is used as a cooking oil and as biodiesel. Livestock feed demand is driven largely by China to feed its large swine population. Like soybean supply, feed demand also shows high seasonality. Due to a shortage of grass in the winter, Soybean Meal is consumed during these months leading to higher demand. Additionally, unlike other commodities, Soy Meal cannot be stored for longer than 3 weeks. So, during the US harvest (October), Soy Meal prices plummet due to oversupply. Cooking oil demand is sensitive to the supply and price of Palm oil, which is also widely used for cooking. Both can be used interchangeably; they are the so called substitute products. So, the decision of which product food producers choose depends on prices, supply, and import/export policy decisions. Moreover, Soybean Oil is far more suitable for the production of biodiesel than Palm Oil. This is why Soybean Oil generally trades at a premium of $100-$150 tonnes to Palm Oil. In the US, Soybean Oil demand for biodiesel is even higher owing to a fast-growing renewable diesel industry. Shifting Dynamics of Soybean By-Products Downbeat Macro With recession risks and inflation running high in many countries, the macro-economic outlook is downbeat. This weighs on the demand for Soybean and its by-products, resulting in lower prices and a narrowing spread. China’s Reopening China’s reopening from pandemic restrictions last year is in full swing. Although initial recovery was sharp, conditions have started to cool due to downbeat macroeconomic conditions weighing on export demand and still weak domestic demand. China’s large swine population is a major driver of meal demand. Heading into the winter, in case domestic demand starts to recover, it would lead to far higher meal demand and prices resulting in a narrowing spread. Rising Demand for Soybean Oil In the past, crush demand was driven largely by demand for Meal, Oil was considered a surplus without enough uses. However, rising demand for green energy across the globe and tax incentives for producers have led to a sharp increase in demand for Soybean oil in the past few years, particularly in the US. Biodiesel production capacity nearly doubled between 2021 and 2022. Since then, markets have normalized with higher planting of crops and increased Soybean crushing capacity installed. Despite the downbeat economic conditions, demand for Soybean Oil is expected to increase 4.9% this year after surging 6.5% last year, according to the USDA. With higher demand for Soybean Oil, crush demand will also increase. This would result in a change in the price relationship between Meal and Oil as well as a narrower crush spread due to higher volumes. Harvesting Profit from Crush Spread Investors can take a position on the crush spread in a capital efficient manner using CME’s Soybean (ZS), Soybean Oil (ZL), and Soybean Meal (ZM) futures. CME offers margin offsets for a crush spread position using these contracts. In addition, the Soybean crush can be executed on CME Globex as a single trade. Each of these 3 contracts are quoted in different units. ZS is quoted in cents/bushel. ZM is quoted in dollars/short ton. ZL is quoted in cents/pound. As such, in order to calculate the value of the spread, the price of each contract needs to be converted to cents/bushel. A bushel of Soybean (60 pounds) yields 11 pounds of Soybean Oil and 44 pounds of 48% protein Soybean Meal. The conversion factors are given below Soybean Oil per bushel: ZL Price x 0.11 Soybean Meal per bushel: ZM Price x 0.022 Crush Spread ($/bushel) = (Soybean Oil per bushel + Soybean Meal per bushel) - ZS Price/100 As per each contract's exposure size, a long crush spread position using CME futures comprises long eleven (11) Soybean Meal futures contracts, long nine (9) Soybean Oil futures contracts, and short ten (10) Soybean futures contracts. This position would normally require a margin of $67,625 for the nearest month contracts. However, with the 88% margin offset, investors can go long on the crush spread with exposure to 50,000 bushels for just ~$8,115 in margin. Alternatively, investors can also get direct exposure to the crush spread using CME’s options on the Soybean Board Crush Spread. Each contract gives exposure to 50,000 bushels. Example Trade Like Soybean prices, the crush also shows seasonality. This is due to the combined seasonal effects of Soybean and each of its byproducts. In our previous paper, we highlighted that Soybean prices are at their lowest in October due to the US harvest. Due to a low input cost (Soybean price), Board crush expands during this time. The same uptrend can be seen during the summer months representing the harvest from Brazil and Argentina. It should be noted that seasonal trends are not a guarantee as other factors can have outsized effects on markets. A long position in the Board crush would represent a short position of 10 Soybean contracts and a long position in 11 Soybean Meal contracts & 9 Soybean Oil contracts. As an example trade, consider the board crush in Jan 2019. Going long on the board crush on 9th Jan with an entry level of USD 1.02/bushel and an exit at USD 1.37/bushel would yield 34% profit. However, investors should note that the board crush value is highly volatile, as it is derived from three volatile underlying drivers. So, stop loss needs to be adjusted for the high volatility. Positions on 9th Jan: ● Short 10 ZS1! at entry level of 924 c/bushel ● Long 11 ZM1! at entry level of USD 323.4 /short ton ● Long 9 ZL1! at entry level of 28.6 c/lb Note that the crush declined to 0.91 on 15th Feb representing downside of 10.7%: ● ZS1! at price level 921.5 resulting in profit of USD 1,250 ● ZM1! at price level 310.5 resulting in loss of USD 14,190 ● ZL1! at price level 29.95 resulting in profit of USD 7,290 Net loss: USD 5,650 Crush started to rise in April and peaked at 1.37 (+34%) on 30th May: ● ZS1! at price level 877.85 resulting in profit of USD 23,075 ● ZM1! at price level 327.4 resulting in profit of USD 4,400 ● ZL1! at price level 27.8 resulting in loss of USD 4,320 Net Profit: USD 21,155 Key Takeaways 1) Board Crush or the Crush Spread represents the Gross Processing Margin (GPM) of crushing Soybean into its by-products as quoted by cash and futures markets. 2) Board Crush allows traders to replicate the Soybean Processing Value Chain. It enables traders to harvest gains from changing crush margins while enabling crushers to hedge their GPMs. 3) Board crush can be volatile which requires astute risk management while trading it. 4) Trading board crush using CME futures is margin efficient due to substantial margin offsets (88%). MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CBOT:ZL1!Education
by mintdotfinance
6
GOLD vs CRYPTOAre you an investor looking to make the best of your money? If so, you may be wondering if gold or cryptocurrency is the right investment for you. In this article, we will take a look at both gold and cryptocurrency and compare their pros and cons for investing. We will begin by defining and characterizing each asset, followed by examining the reasons to invest in them. Finally, we will provide a comparison of the pros and cons of investing in gold versus cryptocurrency, helping readers make an informed decision on which asset to invest in. So let’s get started! Definition and Characteristics of GOLD Gold is a precious metal with a yellow hue that is used for jewelry and coins. Its chemical element is Au (Aurum), and has an atomic number of 79. Gold is a soft metal, with a melting point of 1064.43 degrees Celsius, making it relatively easy to work with when crafting into jewelry or coins. It also has the distinct advantage of being chemically inert, meaning it resists corrosion and tarnishing over time, which allows it to retain its original beauty even after years of use. The price of gold can be influenced by many factors, such as supply and demand in the market, as well as geopolitical events. For example, when there are wars or political unrest in certain regions of the world, investors tend to flock to gold as a safe haven asset which drives up the price due to high demand. Conversely, when markets are stable and economies are doing well, investors may prefer other assets such as stocks or bonds since they provide higher returns than gold does during these times. Furthermore, changes in technology can influence the price of gold; if there is an advancement that makes extracting gold easier or more efficient then this may result in lower prices for consumers due to increased supply. In conclusion, gold has stood the test of time as one of the most valuable commodities on earth thanks to its characteristics such as its yellow hue, softness and resistance against corrosion and tarnishing. Additionally, its price can be influenced by various factors such as supply and demand in the market or geopolitical events. Investors should take all these factors into consideration before deciding whether or not to invest in gold. Reasons to Invest in GOLD Gold has been a reliable source of currency and value for centuries, making it a desirable option for those interested in diversifying their portfolios and protecting their wealth. With its intrinsically high liquidity, gold is also an excellent safe-haven asset that can provide stability in times of economic or political unrest. Additionally, gold often does well during periods of high inflation, providing investors with the means to safeguard themselves from financial losses in volatile markets. Moreover, gold offers diversification benefits due to its low correlation with other assets such as stocks and bonds. This allows investors to spread out their risk across different types of investments while still maintaining strong returns on investments. The convenience to buy and sell gold quickly makes it an attractive asset for those seeking rapid access to cash without having to divest from other holdings first. Furthermore, gold's accessibility makes it suitable for all kinds of investors regardless of budget size or experience level. There are many ways one can invest in gold including physical bullion coins, ETFs (exchange traded funds), or even owning stock in companies involved with mining or processing precious metals such as gold and silver. All these factors make investing in gold a viable choice for anyone looking for long-term portfolio growth and protection against market volatility. Definition and Characteristics of CRYPTO Cryptocurrency is a digital or virtual currency that is secured by cryptography, making it nearly impossible to counterfeit or double-spend. It uses decentralized control, with no central authority or government controlling it. Cryptocurrency transactions are secure and anonymous, making them attractive to investors who value privacy. The most popular cryptocurrency is Bitcoin, created in 2009. Other cryptocurrencies use blockchain technology and are often referred to as altcoins. Blockchain technology provides a secure and transparent way of storing transaction records which cannot be modified or tampered with. Transactions are also processed quickly and securely due to the distributed ledger system used by many cryptocurrencies. Cryptocurrencies have several unique characteristics that make them an attractive choice for investors. They are highly liquid assets as they can be bought, sold, and exchanged for other currencies at any time of day. They also have low transaction costs compared to traditional payment methods such as credit cards and bank transfers. Additionally, since cryptocurrencies are not tied to any country’s economic conditions or policies, they provide greater stability than fiat currencies can offer in times of economic unrest or political turmoil. However, there are some drawbacks associated with investing in cryptocurrencies that should be taken into account before investing in them. Cryptocurrencies are highly volatile assets due to their speculative nature; prices can rise and fall sharply at any time without warning as traders attempt to profit from short-term price movements rather than long-term trends. Additionally, cryptocurrency exchanges do not offer the same level of consumer protection as traditional financial institutions; if you invest in a cryptocurrency exchange you should ensure it has sufficient security measures in place before entrusting it with your money. Finally, because of their pseudonymous nature – meaning users’ identities remain anonymous – cryptocurrencies can be used for illegal activities such as money laundering which could put off potential investors from entering the market altogether. Reasons to Invest in CRYPTO Cryptocurrency has become an increasingly sought-after investment option due to its unique properties. Decentralization of the network allows users complete control over their funds and transactions, making it more secure than traditional methods. Low transaction costs and fast processing times give cryptocurrencies an edge in terms of efficiency compared with other payments systems. By investing in crypto, investors can diversify their portfolios and reduce the risk of market volatility associated with physical commodities like gold or silver. Moreover, depending on timing and individual decisions, cryptocurrency can offer high returns; many digital coins have seen huge gains due to their limited availability and strong demand. Finally, there is potential for impressive capital appreciation in cryptocurrency due to its global acceptance and capacity for growth. Open markets around the world make price movements accessible at any given time - allowing savvy traders to capture profits from various markets if managed correctly. As a relatively new form of investment asset, those who choose to invest early are presented with greater opportunity for growth compared to other options available. In summary, investing in cryptocurrency provides investors with a range of advantages that could lead to long-term portfolio growth or protection against inflationary risks. As such, it is important that all prospective investors conduct thorough research before committing funds into this asset class as there are both risks and rewards involved in this type of investment. Comparative Pros and Cons of Investing in GOLD vs CRYPTO Weighing up the pros and cons of investing in gold or cryptocurrency is a key factor to consider when it comes to making an informed decision on which asset type would best suit one's individual needs. Gold has traditionally been seen as a reliable source of currency and value, offering stability during times of economic or political unrest. Additionally, gold provides diversification benefits due to its low correlation with other assets while also having high liquidity and accessibility for all types of investors. Conversely, crypto investments have become increasingly popular due to their unique properties such as decentralization of the network, low transaction costs, fast processing times, and potential for high returns. Investing in cryptocurrency can help diversify portfolios and reduce risk associated with market volatility; furthermore, crypto is not affected by inflationary pressures like gold is. However, it's important to be aware that both gold and cryptocurrency have their own set of drawbacks that should be factored into any investment decision. For example, gold prices are more volatile than cryptocurrencies but also more stable over long periods of time; additionally, gold has higher liquidity than crypto meaning it’s easier to liquidate investments quickly if needed. Ultimately investors should conduct thorough research into both asset types before deciding which will best meet their own personal goals when investing money. By being aware of the advantages and disadvantages outlined here they will be able to make an educated choice when selecting either gold or cryptocurrency as part of their portfolio. Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩‍💻
OANDA:XAUUSDEducation
by Lingrid
6
TommyXAU Educational - What i mean by clean rangeGood afternoon gold gang, hope you're having a good weekend. I thought id hop on to share with you a piece of information of what i mean by clean range. Ok .. Say you have 2 key levels in price .. we have had a big news event causing a big red candle to the left hand side. This has left what is called an imbalance. An imbalance is where the wicks of the previous and after candle don't meet. Backtest that one yourself and see how many times these imbalances get filled. Price is coming back up and closes above the key level .. it is now a high probability that price will come up and fill that imbalance and the clean range. I call it clean as there is no traffic or hurdles that should stop price on its way up. Again, adding to the probability. Simple as that really guys .. Please leave a like if it was of any help to you and ill see you this evening for market open! TommyXAU
OANDA:XAUUSDEducation
by tommyXAU
3
CBOT Soybean Complex: An IntroductionCBOT: Soybean ( CBOT:ZS1! ), Soybean Meal ( CBOT:ZM1! ), Soybean Oil ( CBOT:ZL1! ) Today, I am starting a new series on CBOT soybeans, one of the most liquid commodities contracts in the world. In March 2023, Soybean, Soybean Meal, and Soybean Oil together traded 14.0 million lots, contributing to 42.6% of CME Group agricultural futures and options volume, and 2.0% of overall Exchange monthly volume. Soybean Market Fundamentals Soybeans are the world’s largest source of animal protein feed and the second largest source of vegetable oil. Soybeans are the most-traded agricultural commodities, comprising more than 10% of the total value of global agriculture trade. According to the World Agricultural Supply and Demand Estimates (WASDE), global soybean production for 2022/2023 crop year is 369.6 million metric tons. Let’s visualize this: If we were to distribute the entire crops to the world population evenly, each person would get approximately 46 kilograms of soybeans. The U.S., Brazil and Argentina are the largest soybean producers, accounting for 80% of the global production. The U.S. is the single largest soybean producer and exporter, harvesting 4.3 billion bushels a year and exporting 47% of it, according to the WASDE. The heart of U.S. soybean production is the Midwest. In the main part of the soybean belt, planting takes place from late April through June, with harvest beginning in late September and ending in late November. About two thirds of the total soybean crop is processed, or crushed, into soybean oil and soybean meal. The term “crush” refers to the physical process of converting soybeans into its oil and meal byproducts. The crush spread refers to the difference between the value of soybean meal and oil and the price of soybeans. It represents the gross processing margin from crushing soybeans. When a bushel of soybeans weighing 60 pounds is crushed, the typical results are: • 11 pounds of soybean oil (18%) • 44 pounds of soybean meal (73%) • 4 pounds of hulls (6%) • 1 pound of waste (2%) Soybean meal is used by feed manufacturers as a prime ingredient in high-protein animal feed for poultry and livestock. It is further processed into human foods, such as soy grits and flour, and is a key component in meat or dairy substitutes, like soymilk and tofu. After initial processing, soybean oil is further refined and used in cooking oils, margarines, mayonnaise and salad dressings and industrial chemicals. Soybean oil may also be left unprocessed and used in the production of biodiesel fuels. Exports are big business for U.S. soybean farmers. According to the data from U.S. Bureau of Economic Analysis, soybean exports totaled $6.9 billion in the first two months of 2023, contributing to 1.4% of all U.S. exports of goods and services. Soybean exports have increased dramatically since 2000 as the demand for meat and poultry grew in Europe and Asia, particularly in China. CBOT Soybeans Futures and Options Soybean futures began trading at the Chicago Board of Trade in 1932, followed by futures on its byproducts: Soybean Oil in 1946 and Soybean Meal in 1947. Soybean (ZS) futures are physically delivered contracts based on No. 2 yellow soybeans. Each contract has a notional value of 5,000 bushels, equivalent to 136 metric tons. Soybean contracts are listed for the months of Nov., Jan., Mar., May, Jul., Aug., and Sep., projecting out about 3.5 years in the future. You may have heard of the terms “New Crop” and “Old Crop”. The former refers to crops that have not been harvested. For soybeans, it’s Nov. contract (ZSX3), which coincides with the harvest season. For contract months May, Jul., Aug., and Sep. 2023, soybeans available for sales are from the previous crop year, hence the name “Old Crop”. Soybean options (OZS) have a contract unit of 1 ZS futures contract. It is deliverable by the corresponding futures contract, with the last trading day set at one month prior to futures expiration month. Soybean Meal (ZM) futures are also physically delivered contracts. Each contract has a notional value of 100 short tons, equivalent to 91 metric tons. Soybean Meal contracts are listed for the months of Jan., Mar., May., Jul., Aug., Sep., Oct., and Dec. A total of 25 contracts are listed simultaneously. Because of the use of soybean meal for animal feed, its demand is closely aligned with the livestock and poultry industry. For the export market, instead of soybean meal, buyers usually buy soybeans and process them in their home country. Soybean Meal options (OZM) have a contract unit of 1 ZM futures contract and are deliverable by the corresponding futures contract. Soybean Oil (ZL) futures are physically delivered contracts. Each contract has a notional value of 60,000 pounds, equivalent to 27.2 metric tons. Soybean Oil contracts are listed for the months of Jan., Mar., May., Jul., Aug., Sep., Oct., and Dec. A total of 27 contracts are listed simultaneously. While soybean oil is a leading ingredient for edible oil, oilseeds also include rapeseed, sunflower, sesame, groundnut, mustard, coconut, cotton seeds and palm oil. Whenever one of them becomes too expensive, food companies would substitute it with a cheaper ingredient. Hence, soybean oil price is highly correlated with the other oilseed products. Use Cases for CBOT Soybeans Contracts At every stage of the soybean production chain, from planting, growing and harvest, to exporting and processing, market participants face the risk of adverse price movements. Prices of soybean and its byproducts continuously fluctuate, largely determined by crop production cycles, weather, livestock production cycles, and ongoing shifts in global market demand. In this section, I will illustrate how producer, storer, processor and soybean user could use CBOT soybeans futures and options to hedge market risks. Soybean Farmer (Producer) When a US soybean farmer plants the crops in April, he is said to have a Long Cash position. The farmer is exposed to the risk of falling soybean price during the November harvest season. To hedge the price risk, our farmer could enter a Short Futures position now, and buy back and offset the futures when he is ready to sell the crops. Since the cash market and futures market are highly correlated, loss or gain in the cash market will be largely offset by the gain or loss in the futures market. The farmer is left with basis risk, which is adverse changes of the cash-futures spread. It is usually much smaller than the outright price risk. In the context of futures trading, notably commodities, basis refers to the difference between the spot (cash) price of a commodity and the price of a futures contract for that same commodity. Grain Elevator (Storer) After the crop is harvested, farmer or merchandiser would usually store the soybeans in a grain elevator and wait for the right time and price to sell. Soybeans could be stored for a year but would incur monthly storage costs. The decision to store depends on whether expected future price gains outweigh the storage costs. The merchandizer is exposed to the risk of falling soybean price, which would cause his soybean inventory (old crop) to decline in value. To hedge the price risks, he could establish a Short Futures position for the expected period of storage and buy it back when he is ready to sell. Oilseed Processor For soybean processing mill, crush spread represents the gross processing margin from crushing soybeans. It is exposed to the risk of rising soybean price where meal and oil prices fail to catch up. Soybeans trade in bushels, soybean meal trades in short tons and soybean oil trades in pounds. The prices of the three commodities need to be converted to a common unit for an accurate calculation. A bushel of soybeans produces about 44 pounds of soybean meal. Since Soybean Meal futures are priced per ton, multiplying the meal price by 0.022 represents the meal price per 44 pounds. That same bushel of soybeans also produces 11 pounds of soybean oil. Since Soybean Oil futures are priced per pound, multiplying the soybean oil price by 0.11 represents the oil price per 11 pounds. (www.cmegroup.com) Processor could lock in the crush margin by a crush spread trade. To ease the difficulty of constructing and executing the spread, CME Group facilitates the board crush that consists of a total of 30 contracts; 10 Soybean, 11 Soybean Meal, and 9 Soybean Oil. Livestock Farmer (User) Large-scale farms usually buy corn, soybean meal and other ingredients to produce their own feed. Farmers are exposed to the risk of rising ingredient costs. They could hedge the price risk by establishing long positions in CBOT corn and soybean meal futures. For hog farmers, gross production profit is represented by the Hog Crush Margin. It is defined by the value of lean hog (LH) less the cost of weaned pig (WP), corn (C) and soybean meal (SBM). In the futures market, traders could replicate the economic hog crush margin with a Hog Feeding Spread involving CME lean hog (HE), CBOT Corn (ZC) and CBOT Soybean Meal (ZM). There is no futures contract for weaned pig (piglet). If you expect hog margin to grow, Long the feeding spread: Buy lean hog, sell corn and soybean meal. For a shrinking margin, Short the spread: Sell hog, buy corn and meal. This concludes Part 1 of our introduction to CBOT Soybean complex. In Part 2, I plan to discuss major reports that move the soybean markets: • World Agricultural Supply and Demand Estimates (WASDE) • USDA Prospective Plantings Report • USDA Grain Stocks Report • CFTC Commitment of Traders Report Happy Trading. (To be continued) Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZS1!Education
by JimHuangChicago
5
How to Build Wealth (Even During Monetary Tightening)One question that many investors are asking right now is: How can I build wealth during monetary tightening? To answer this question, one must understand how the money supply works. The Money Supply The money supply refers to the total amount of currency held by the public at a particular point in time. M2 is one of the most common measures of the U.S. money supply. It reflects the amount of money that is available to be invested. M2 includes currency held by the non-bank public, checkable deposits, travelers’ checks, savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds. The chart above is a time-compressed view of the money supply. The time scale has been compressed such that the money supply appears as a vertical line with clusters of dots. Each dot represents a quarter (or 3-month period). During periods of monetary easing, when the central bank accelerates increases in the money supply, the dots stretch wider apart, as shown below. During periods of monetary tightening, when the central bank decelerates increases in the money supply, the dots tighten together. In rare cases, the central bank can reduce the money supply to fight inflation, in which case the dots can retrograde. The central bank rarely reduces the money supply because it usually results in economic decline. The Money Supply and The Stock Market Since the money supply reflects the amount of money that can be invested in the stock market, the stock market tends to track the money supply. As the money supply (M2SL) grows so too does the stock market (SPX). The chart above shows that despite the stock market’s oscillations, over the long term, the growth rate of the stock market tends to track the growth rate of the money supply. The stock market goes up, in large part, because the money supply goes up. The chart below is from the book Stocks for the Long Run by Jeremy Siegel, Professor of Finance at the Wharton School. The chart shows that compared to other asset classes, stocks generally perform the best over time. Stocks generally perform the best over time because the growth rate of the stock market generally tracks the growth rate of the money supply fairly well. Investing in the stock market is therefore an efficient means of preserving wealth over the long term. One will always be better off investing in assets that grow in price at a faster rate than the rate at which the money supply grows than investing in assets that do not. When the money supply decreases during periods of monetary tightening, as is happening right now, only assets that outperform the money supply can produce positive returns. Knowing these facts, we can reach the following conclusion: Generally, investing in the stock market does not intrinsically build wealth, it merely efficiently preserves wealth over time against the perpetual erosion of an ever-increasing money supply. To build wealth one must invest in assets that grow in price faster than the rate at which the money supply grows . Preserving Wealth vs. Building Wealth As noted, to build wealth one must invest in assets that move up in price faster than the rate at which the money supply moves up. Investing in assets that move up in price over time, but at a rate less than that which the money supply moves up over time may seem like a good investment to an investor if the investor is making money, but such investments are not typically wealth-building. These investments are merely some degree of wealth-preserving. When the price of an investment increases over time at a rate less than the money supply, that investment causes a loss of wealth, despite giving the investor the perception of increased wealth. A loss of wealth occurs because the investor’s purchasing power is decreasing over the period of time which the investment is held. Purchasing power is the value of a currency expressed in terms of the number of goods or services that one unit of money can buy. It can weaken over time due to inflation. To keep things simple, let’s assume that other elements of inflation, such as money velocity, remain fairly constant and that an increasing money supply is the main cause of inflation. Let’s consider some case studies. Case Study #1: REITs Suppose an investor, John, invests his money in real estate investment trusts (REITs), specifically BRT Apartments Corp. John is a smart investor and does research before investing. In his research, he sees that BRT has decent profitability and a fair valuation. He also sees that BRT has decent growth potential. After analyzing fundamentals, John does technical analysis. He sees the below chart which shows a decades-long bull run. (Chart has been adjusted to include dividends) He thinks to himself: This asset is a money maker. Despite periods of corrections, price generally goes up over time. John then buys shares of BRT as part of a long-term investment strategy. John has done his due diligence and indeed he is right that, over the long term, his investment is likely to make quite a bit of money. However, if John invests in this asset, although he will make money, he will lose wealth or purchasing power. That’s because the Federal Reserve is increasing the money supply at a rate that is faster than John’s investment grows. Here’s a chart of BRT adjusted for the money supply (and adjusted to include dividends). Adjusting the price of BRT by the money supply shows a clear downtrend over time. This means that while BRT is growing in price and its investors are making money, BRT’s investors are generally losing purchasing power over time by investing in this asset because the central bank is increasing the money supply at a faster rate than the rate at which BRT's price grows. By increasing the money supply exponentially over time, central banks trick people into believing that they are building wealth by investing when in fact most investments are, at best, some degree of wealth preserving. Only a minority of assets outperform the money supply, and usually, that outperformance is temporary. In the era of monetary easing, during which central banks drastically increased the money supply using various monetary tools, perceived wealth skyrocketed. However, actual gains in purchasing power or improvement in living standards, as measured by increased productivity, largely did not occur. You may be thinking that I simply chose a bad investment to demonstrate my point. While BRT is actually a great investment relative to most other assets, let's move on to the second case study: an asset that has skyrocketed in price in recent years. You will find that even for assets that have outperformed the growth in the money supply, the period of outperformance is usually temporary. Case Study #2: Microsoft (MSFT) Microsoft is an example of a stock that has outperformed the growth rate of the money supply in recent years. Below is a chart of MSFT adjusted for the money supply. The chart shows that although the growth in MSFT's price generally outperforms the growth rate of the money supply, it undergoes prolonged periods of underperformance when investors can lose wealth. This wealth loss effect cannot be fully ascertained by looking only at a chart of just MSFT's price. It only becomes fully apparent when one compares the stock's price to the money supply. Tech stocks have generally outperformed the money supply since the Great Recession. They were excellent wealth-building investments. However, now that the central bank has begun monetary tightening, interest-rate-sensitive tech stocks are especially likely to decline. Investing in these assets while the money supply is decreasing, and while interest rates are surging, may result in loss of wealth. Case Study #3: Utilities (XLU) The chart below shows how well the utilities sector performed over the past two decades. Let’s adjust the chart to the money supply. (See chart below) You can see that XLU moved horizontally relative to the money supply, meaning that it merely preserves wealth to varying degrees but does not generally build wealth over the long term. By including the money supply in our charts, we remove the confoundment of monetary policy and elucidate the true intrinsic growth potential of assets. Case study #4: ARK Innovation ETF (ARKK) Look at the chart below which shows ARK Innovation ETF (ARKK), managed by Cathie Wood, relative to the money supply. Cathie Wood’s investment choices have actually caused a loss of wealth since the fund’s inception in 2014. You can see in the above chart that price is slightly below the center zero line, which means that wealth has been lost by those who invested in ARKK in 2014 and held continuously to the current time. Finally, check out the below chart of SPY relative to the money supply. The entire post-Great Recession bull run in SPY was merely a recovery of the wealth lost since the Dotcom Bust, over 2 decades ago. The stock market is ominously again being resisted at this peak level. The below chart shows that the stock market has given back much of the wealth built since the pre-Great Recession peak. In summary, wealth-building requires investing in assets with a growth rate that is greater than the growth rate of the money supply. To accomplish this, an investor should compare an asset against the money supply before choosing to invest. Assets that continuously outperform the money supply over the long term are better investments than those that do not. One can use standard technical analysis on the ratio chart to determine candidates that are most likely to outperform the money supply. In the face of high inflation, central banks must reduce the money supply. A decreasing money supply pulls the rug out from under the stock market. When the money supply is falling, corporate earnings and the stock market typically fall as well. Inflation When the COVID-19 pandemic hit, the Federal Reserve and central banks around the world increased the money supply by an unprecedented amount. Throughout the course of its entire history up until the pandemic, the U.S. money supply moved up predictably within a log-linear regression channel, as shown in the chart below. Before the pandemic, the log-linear regression channel had an exceptionally high Pearson correlation coefficient (over 0.99), which suggests that the regression channel was reliably containing the money supply’s oscillations over time. When the pandemic hit the global economy came to a halt. The Federal Reserve increased the money supply by a magnitude that was so astronomical that it went up vertically even when logarithmically adjusted. (See the chart below) As a thought experiment, let’s assume that the log-linear regression channel above is valid and that data are normally distributed (typically they are not in financial markets). If it were the case that such a sudden, astronomical increase in the money supply occurred totally randomly, the event would be a 10-sigma event (meaning 10 standard deviations away from the mean). The chance of such a rare event happening totally randomly is so small that it would occur about once every 500,000 quadrillion years. Since this is much longer than the age of the known universe, a 10-sigma event is essentially equivalent to an event that will statistically never happen. Thus, no one was prepared for the action that the Federal Reserve took. By exploding the money supply by this extreme amount and flooding the market with so much newly created money, central banks instantly made everyone feel wealthier by giving them more money, but this action would eventually make everyone less wealthy by destroying their purchasing power as inflation ensued. Once high inflation begins, it can be hard to stop. When inflation stays high for too long the public begins to expect more of it. The public then alters its spending and saving habits. The public also begins to demand higher wages to keep up with high inflation. This creates a negative feedback loop: When workers receive higher wages to keep up with inflation, workers can afford to pay inflated prices which keeps inflation higher for longer. As workers get paid more, keeping demand high, companies also charge more for their goods and services. Eventually, workers again demand higher wages to keep up with yet even higher prices. At every stage of inflation, the best strategy for central banks is to downplay its true severity. This is because the easiest way to control inflation is by managing the public’s perception of it. The hard way to control inflation is to raise the cost of money – interest rates – which in turn induces economic decline, and which can cause financial crises as highly indebted consumers, companies and governments cannot afford higher interest payments. Bonds Government bond yields reached a record low during the COVID-19 pandemic. The chart below shows that interest rates – or the price of money – reached their lowest level in the nearly 5,000 years for which records exist. Since the start of 2022, interest rates have surged higher, breaking a multi-decade downtrend, and ushering the market into a new super cycle where interest rates will likely remain higher for the long term. Interest rates and the money supply are inextricably linked. Few people know why an inverted yield curve predicts a recession. An inverted yield curve reflects the destruction of money. When the yield curve is inverted, banks can no longer profitably borrow at short term rates and lend at long term rates. Bank lending creates the most amount of money. An inverted yield curve is a market perversion that does not occur naturally but occurs only through central bank action. Inverting the yield curve is a highly obfuscated tool that central banks use to decrease the money supply. Furthermore, as we discussed before, since the stock market generally tracks the money supply, an inverted yield curve is a warning that the stock market will fall in the future. Recently, the yield curve (as measured by the 10-year minus the 2-year U.S. treasury bonds) inverted by the most on record. Below is the chart of iShares 20+ Year Treasury Bond ETF (TLT). TLT tracks an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years. As you can see from the chart above, which excludes the past two years, it looks like TLT has been a great investment over the past two decades. (For this chart, I included dividends. TLT pays out dividends that derive from interest payments on its bond holdings.) Look at the chart below to see what happens when we adjust the chart for the money supply. In the chart above we see that since its inception TLT moved horizontally relative to the money supply. What this means is that holding TLT over this period was not wealth-building, but it was good at preserving wealth. Its price moved up in perfect lockstep with the money supply. Now, let’s see how TLT performed in the past two years. As we see in the chart above, until 2021, an investor who held long-term U.S. government bonds would have been preserving their wealth and shielding it from the erosion of perpetual increases in money supply. However, as interest rates on government debt surged higher as central banks fight high inflation, bond investors are now seeing major wealth destruction. In a stable monetary system, investing in government bonds should preserve wealth, since if it fails to do so, no one will buy bonds to finance the government. The situation is also concerning when we examine investment-grade corporate bonds (LQD) relative to the money supply. This chart of investment-grade corporate bonds adjusted for the money supply shows that we should be concerned about the current state of even the most high-grade corporate bonds. We see that the value of investment-grade corporate bonds over time, inclusive of their interest payments, has fallen off a cliff relative to the rate at which the money supply is increasing. This chart suggests that those who invested in corporate bonds have recently lost a lot of wealth. Until the current trend reverses, who would want to invest in corporate bonds? This is a problem for corporate finance. Below is a chart of high-yield corporate bonds (HYG), (which are riskier than investment-grade corporate bonds), as compared to the money supply. You can see from the chart above that all the wealth built by investing in high-yield corporate bonds since the Great Recession has been completely wiped out. What I am about to explain next will be somewhat dense. Look again at the two charts below which show investment-grade corporate bonds relative to the money supply and high-yield corporate bonds relative to the money supply. Recall that bond prices move inversely to bond yields. Thus, if we flip these charts of corporate bond prices, we will get corporate bond yields relative to the money supply. Now let’s think. These charts show that the yields on corporate bonds are moving up faster than the supply of money. Corporate bond yields reflect the amount of money that corporations must pay on their debt. In other words, the amount of money that corporations will have to pay to service their debt is moving up faster than the money supply. As noted previously, the money supply speaks to corporate earnings since corporations can only ever earn some subset of the total supply of money in the economy. Thus, if the money supply decreases, as it is now, corporate earnings will likely decrease as well. If the interest on corporate debt is moving up much faster than the money supply, and the money supply which reflects corporate earning capacity is decreasing, what might this say about the future? Mortgages In the chart below, I analyzed the current median single-family home price in the United States adjusted by the current average 30-year fixed-rate mortgage (as a percentage). I then compared this number to the money supply. This chart gives us a sense of whether or not the Federal Reserve is supplying enough money to the economy to support the current expense of home ownership. As you can see, price is rapidly approaching the upper channel line (2 standard deviations above the mean), which signals that home ownership is the least affordable it has been since the early 1980s – the last time the upper channel line was reached. If one believes that the 2 standard deviation level is restrictive, then one may conclude that there is not enough money being supplied by the Federal Reserve to sustain such high home prices as coupled with such high mortgage rates. If the Federal Reserve does not pivot back to a less tight monetary policy soon, then there is a high probability that a housing recession will occur in the coming years. Perhaps what is more alarming is the below chart, which shows the EMA ribbon. The EMA ribbon is a collection of exponential moving averages that tend to act as support or resistance over time. When the ribbon is decisively pierced it reflects a trend change. We can see in the above chart, that for the first time since the mid-1980s, we have pierced through the EMA ribbon. This could be a signal that a new super cycle has begun, whereby a higher interest rate environment will persist alongside high inflation for the long term, potentially making homes less affordable for the long term. This is one of many charts that seem to validate the conclusion that inflation will remain persistently high for the long term. Commodities In the below chart, the price of commodities is measured as a ratio to the money supply. This chart informs us that commodity prices have broken their long-term downward trend relative to the money supply. The chart above shows commodities as a ratio to the money supply side-by-side an inverted chart of the S&P 500 as a ratio to the money supply. It appears that the ratio of commodities to the money supply reflects an inverse relationship to the S&P 500 and the money supply. Think about what these charts may be indicating. Could they suggest that in the face of a shrinking money supply, more money will flow out of the stock market into increasingly scarce commodities? In a deglobalizing world facing conflict, climate change, and declining growth in productivity, it’s unlikely that commodity prices will return to the extremely undervalued levels seen in 2020. One commodity, in particular, deserves its own discussion: Gold. Gold During a monetary crisis, the usual winner is physical gold. Since the dawn of human civilization, gold has played an important role in the monetary system. As a scarce commodity gold is often perceived as inherently valuable. In his 1912 book, The Theory of Money and Credit, Ludwig von Mises theorized that the value of money can be traced back ("regressed") to its value as a commodity. This has come to be known as the Regression Theorem. Once paper money was introduced, currencies still maintained an explicit link to gold (the paper being exchangeable for gold on demand). However, the U.S. abandoned the gold standard in 1971 to curb inflation and prevent foreign nations from overburdening the system by redeeming their dollars for gold. Currently, gold is extremely undervalued when priced in U.S. dollars. The current fair dollar-to-gold ratio is currently about $7,200 per ounce of gold. This number is produced by dividing the year-to-year increases in the money supply by the yearly production of gold in ounces. Eventually, a monetary crisis will occur, and according to Exter’s Pyramid, investors will scramble for gold, which may force fiat currency to regress back to a gold standard to stabilize markets. Bitcoin In this final part, I will give a few thoughts on Bitcoin, as it relates to the money supply. Below, you will see that when charted as a ratio to the money supply, Bitcoin formed a nearly perfect double top in 2021. This chart could have warned traders that Bitcoin had topped in November 2021 given Bitcoin's inability to achieve a new high relative to the money supply. This shows that one can use the money supply in their charting as an additional layer of technical analysis. In the below chart, we see how Bitcoin's market cap is moving relative to the U.S. money supply. Bitcoin’s yearly chart is a bull flag relative to the money supply. There are very few assets outside of the cryptocurrency class that present as a bull flag relative to the money supply on their yearly chart. What might this chart reveal about Bitcoin's tendency to disrupt central banks' ability to conduct monetary policy? The Federal Reserve’s inability to stop people from converting dollars into Bitcoin to store wealth is a problem that will likely result in Bitcoin and other forms of decentralized finance coming under the greater scrutiny of the U.S. federal government. In the future, I plan to write a post on investing in cryptocurrency. In that post, I will explore Bitcoin and blockchain technology in much greater depth. Final thoughts To build wealth one must invest in assets that grow in price faster than the money supply erodes purchasing power. To become a successful investor, one must revolutionize one’s perception of money and understand that cash – or central bank notes – are worth nothing more than the belief that the government will persist and remain solvent. To build wealth an investor’s goal should not be to make as much cash as possible, rather an investor’s goal should be to convert cash into assets that grow faster than the money supply and to accumulate as much of such assets as possible.
FRED:M2SLEducation
by SpyMasterTrades
48
How Much Gold Does Your Portfolio Need?Economists make forecasts to make weathermen look good. Trying to forecast trends in complex systems is never easy. As with weather, financial markets are influenced by a myriad of factors which can make prediction akin to gambling. Time in the market beats timing the market so a far safer bet is building a diversified and informed portfolio. As mentioned in our previous paper , gold is a crucial addition to any well-diversified portfolio. Gold offers investors the benefits of resilience during crises, diversification, and low volatility while also being a good hedge against inflation. With crisis ever-present, from pandemics and geo-political conflict to financial instability and recession, uncertainty is on everyone’s lips, including central banks which bought a record 1,135 tonnes of gold last year. Central Banks have shown no signs of slowdown going into 2023, buying 74t in Jan and 52t in Feb, the strongest start to central bank buying since 2010. It is clear why, with rising global inflation due to 2 years of unprecedented QE. A decade of cheap money has its costs which are coming back to bite both consumers and central banks. This is now being played with collapsing banks and crumbling businesses. Though governments may term these exceptions, they’re the inevitable consequence of hiking rates too fast. And even though inflation has now started to cool, it is proving stubborn and the risk of recession looms. In crisis, institutions and individuals rush to gold. It’s no wonder then that gold prices spiked in March nearing an All-Time-High above USD 2,000/oz. Gold continues to trade above the key 2000 level even in April. Even now crises show no sign of slowing. Recession talks have become commonplace and phantoms of 2008 haunt with bank collapses. The world is increasingly moving towards reshoring and friendshoring, and de-dollarization is talked about more and more. It is almost inevitable that gold will break its all-time-high soon. But, buying gold is the easy part, in fact, our previous paper covered 6 Ways to Invest in Gold. Managing gold as part of a larger portfolio is more nuanced. Allocating the right amount, finding the right entry, and knowing when to cash out are all critical. This paper aims to address two questions – 1. What are the key drivers of gold prices in this decade 2. How should investors use gold in balancing portfolios to navigate turbulent times? What Propels Gold After Its All Time High? SVB and Credit Suisse pushed it to its brink. In fact, spot prices in India, Australia, and the UK sailed even above their All-Time-High. But what propels gold now? Financial Instability Was Credit Suisse the End? “The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.” - Jamie Dimon Unfortunately, Credit Suisse was likely just a symptom of the larger problem. 2-years of near-free money has inevitably led others to make risky bets which catch up to them during periods of QT. Additionally, Credit Suisse and SVB’s collapse were both set off by an unprecedentedly aggressive rate hiking cycle. Fed is stuck between a rock and a hard place as they try to control runaway inflation with aggressive rate hikes. Higher rates for longer increase the risks of financial instability. Stubborn Inflation and Recession Risks Stubborn inflation? Wasn’t inflation on its way down after almost a year? Yes and No. Although yearly inflation has definitely cooled in most countries from their peak last year, inflation continues to tick up month-by-month above the targets that central banks have set for themselves. It is not expected to reach below their targets even before 2025 in many countries. This is because although energy and commodity prices have cooled with demand waning, core inflation continues to remain stubbornly high. Additionally, food and energy prices are still volatile. On the back of this, recession risks remain high. Recently released FOMC meeting minutes showed that officials expect a recession in the second half of the year. A recession in many countries now seems inevitable. Gold shines during recession and high-inflation environments. High Interest Rates Wasn’t the Fed done hiking? Currently, CME’s FedWatch tool shows a ~72% chance of another 25bps hike next month despite the surprisingly low US CPI print. Does another 25bps matter? What’s more important is that 25bps is the peak rate and most central banks are calling this summit a pause and not a pivot. As such, rates will likely remain high for the remainder of 2023. Gold tends to perform well during high interest rate and risk-off environments. Escalating Tensions, Friendshoring, and De-Dollarization Last but definitely not least are central banks and their gold-buying binge. Though some of this can be explained by the ultra-high inflation. It is undeniably also driven by rising political tensions. The conflict in Ukraine continues to rage and the US extend its trade war against China with the CHIPS act. This is driving many of the largest economies to reshore and friendshore key supply chains. This also means relying less on the USD which can be weaponized by the US. De-dollarization has been underway for the last 23 years as the share of USD holdings in foreign exchange reserves has declined from 71.5% to 58.3% over the past 23 years. Current conditions make it more likely that the trend will accelerate. Gold inevitably benefits from all of this as it is one of the only assets that no other central bank can print or freeze. All of these factors will likely drive gold in the coming decade. But instead of setting a price target, investors can be prudent and methodical by properly allocating it as part of a larger portfolio. Using Gold in a Portfolio From 2000 until now, the following portfolios would deliver: Since 2000, gold has been the best performing asset out of the 3 main components of a basic portfolio – Large Cap stocks (SPY), Treasury Bonds (10Y), and Gold. Gold price has risen 609% compared to SPY at +193%. Investing in 10-year maturity treasury bonds would have netted investors 110% during these 23 years. As such, larger portfolio allocation towards gold would have yielded investors far more during this period. However, this comes at the downside of higher volatility. Gold has had an average 12-month rolling volatility of 15.8% over the last 23 years, slightly higher than SPY’s 14%. Still, not all volatility is bad, especially if the returns outweigh the risk. Volatility to the upside can be beneficial to investors. In order to measure the returns from the portfolio after accounting for higher volatility-associated risk, investors can measure the risk-adjusted returns using the Sharpe Ratio and Sortino Ratio. Sharpe Ratio measures the amount of excess return generated by taking on additional volatility-related risk. The higher the Sharpe Ratio, the better the portfolio is performing relative to its risk. The figure below contains the Sharpe Ratio for each of the portfolios across the last 23 years. Since each year had a different risk-free rate due to changing monetary policy, the Sharpe ratios vary for every year and there are periods during which gold-heavy portfolios have highest Sharpe ratios and others where it has the lowest. This highlights gold's sensitivity to changes in monetary policy. Sortino Ratio also measures risk-adjusted returns like the Sharpe Ratio however it only considers the risk of downside volatility. In other words, it measures return for every unit of downside risk. The figure below contains the Sortino Ratio for each of the portfolios. A key difference between the Sharpe and Sortino Ratios can be seen in the readings for 2009. Sharpe Ratio for a gold-heavy portfolio is the lowest in 2009 due to high volatility in gold prices. However, since this was volatility to the upside, the Sortino Ratio for a gold-heavy portfolio in 2009 is the highest. In 2023, a Gold heavy portfolio has performed the best and has the highest Sharpe and Sortino Ratio due to gold's relative overperformance amid the banking crisis. DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
COMEX:GC1!Education
by mintdotfinance
4
XAUUSD How to enter on the retest (tutorial)Whats up gold gang! hope you have enjoyed your weekend .. its nearly market open .. so lets get ready. This weeks educational post is talking about the retest .. so what is a retest. When price breaks a banking level .. i normally enter on the break out .. but if i miss that .. you can wait for the retest. This is where price comes back to the level to collect more orders before shooting off in the direction of the current trend. Wait for a wick rejection at the banking level and a bullish candle to follow .. on the hour or 30m is the best .. then you can enter on the break of the previous bullish. Make sure this is at volume time around the opens. As anything .. it sounds simple .. but tricky to get right .. and is a lower probability set up compared to the standard breakout. Hope this was helpful guys .. please leave a like if you did. Ill be back tonight for the open and asian outlook going into tomorrow tommyXAU
OANDA:XAUUSDEducation
by tommyXAU
What influences the price of OIL?In today’s volatile global market, the price of oil can be affected by a variety of factors. From wars and international trade agreements to financial market dynamics and global economic outlook, understanding what influences the price of oil is essential for both governments and individuals alike. In this post, we will look at how geopolitical factors, financial market dynamics, the global economy, oil producers’ strategies, and weather events all play a role in determining the cost of one of our most valuable resources. By examining each factor in turn, we can gain insight into why prices fluctuate so drastically over time and how to respond appropriately when they do. Read on to learn more about what influences the price of oil. Geopolitical Factors: Geopolitical factors have a major impact on oil prices, as the global demand for oil is heavily influenced by political events and decisions. The instability of certain regions and countries can reduce their production levels, leading to a rise in prices. International trade agreements can also affect oil prices: the recent US-China trade war has had a significant impact on oil markets, with supply chain disruptions causing uncertainty and increased volatility. The presence or absence of certain governments in oil-producing nations can also influence prices dramatically. For example, the toppling of Muammar Gaddafi's regime in Libya caused a sharp spike in global crude prices due to its immediate effect on oil production levels. Similarly, political unrest in Iraq and other Middle Eastern countries have resulted in supply disruptions that have pushed up prices. Lastly, global political events such as wars, coups, and other acts of aggression can disrupt the production of oil and drive up its price. For instance, when the US imposed sanctions on Iran following its nuclear program activities, it caused an immediate jump in crude prices due to fears about potential supply disruptions from Iran’s fields. In addition to these direct effects on production and supply levels, geopolitical events often lead to market speculation which further drives up prices even if there is no actual disruption to supplies. Supply and Demand The balance between global supply and demand for crude oil plays a key role in determining the price of oil. Changes in global supply can cause shifts in prices, such as when OPEC (Organization of the Petroleum Exporting Countries) countries agree to reduce production, or natural disasters affect output from offshore rigs or refineries. On the other hand, changes in global demand can also have an impact on oil prices. For example, economic booms can cause an increase in demand for fuel, while recessions tend to weaken it. When demand is high and supply is low, then oil prices tend to be higher as customers are willing to pay more for limited resources. Conversely when supplies are plentiful and demand is low, then prices decrease as suppliers compete with each other by offering lower rates. The interplay between these two factors is what drives the price of oil. It's important to note that both short-term and long-term forces influence the price of oil; geopolitical events may create temporary disruption but underlying trends are always at play too. For instance, if there's a sudden increase in production due to new technologies used by producers or a drop in consumption due to changing energy needs, then this could result in long-term changes to the price of crude oil. In addition to this kind of market fundamentals affecting the cost of oil on a macro level, some countries may choose to manipulate their own domestic supplies which can have significant implications on regional markets as well as global ones. Some governments even use subsidies or taxes on petroleum products as part of their fiscal policy strategies – practices which can help cushion consumers against fluctuations in international markets but could also lead to imbalances over time if left unchecked. Overall, understanding how supply and demand dynamics interact with one another helps explain why prices may go up or down depending on current events and market conditions – knowledge which provides valuable insight into how companies should approach pricing strategies for their goods and services around energy costs. Economic Sanctions Economic sanctions are a strategic tool wielded by governments to implement international law or force compliance. This approach can take the form of trade restrictions, investment prohibitions, financial transaction limitations, travel bans and technological access constraints. The application of economic sanctions can have a major effect on global oil prices - as evidenced in 2018 when US-imposed sanctions caused Iranian exports to plunge, with an ensuing surge in oil prices across the world. Similarly, US-driven sanctions against Venezuela had a similar effect on pricing the following year. It is not only reductions in production that influence price movement; sentiment can also play a role. Sanctions against Iran saw market sentiment affected, resulting in increased volatility and more expensive oil for consumers. If an embargo were imposed on a major producer such as Saudi Arabia or Russia there could be widespread disruption to supplies and increased pricing for everyone involved. Even if production isn't hit directly by particular sanctions then long term trends may still be affected: An embargo on Saudi Arabia would likely lead to reduced crude inventories over time as production levels adjust accordingly causing higher prices across the board down the line. This could stimulate demand for renewable energy sources like solar or wind power which would decrease global demand for fossil fuels while bringing down crude costs overall. Overall it is clear that economic sanctions can have both short term and long lasting effects on global oil prices - depending upon their scope, duration and severity. Therefore businesses tied up with energy trading or others parts of the industry should stay vigilant regarding these types of events so they are prepared for any disruptions that may arise from them ahead of time. Political Unrest Political turmoil can have a significant influence on the cost of oil, producing instability in the market and creating price volatility. Elections, uprisings, strikes or civil wars can cause disruptions to supply chains, resulting in higher costs for purchasers. Additionally, alterations to United States foreign policy and government regulations can also affect the oil industry. For instance, when the US exited the Iran nuclear deal in 2018 and placed sanctions on Iranian oil exports, international petroleum prices rose significantly. Oil is traded globally so unrest in one country may cause an impact on oil costs around the world. In 2019, demonstrations against fuel tax hikes precipitated a global crude oil increase due to worries about supply interruptions from Total SA's leading refinery in France. Similarly, Yemen’s civil war has caused upheaval across the globe - with Saudi Arabia stopping most of its crude shipments via the Red Sea due to safety issues connected to Houthi rebels. Political turbulence could also lead to a decrease in investment into energy infrastructure projects such as pipelines or refineries - meaning that even if there is demand for petroleum products they might not reach customers because of logistics issues. This could result in shortages of certain goods and consequently greater fees for buyers. Overall it is evident that political unrest has wide-reaching consequences for the price of oil both locally and internationally. It is crucial for businesses working within this sector to keep up with current events so that they are better prepared for any potential disturbance or cost variations that may occur as a result of political instability around the world. Financial Market Dynamics: Financial markets play an important role in influencing the price of oil. Large institutional investors, such as pension funds and hedge funds, often make decisions based on short-term trends in the energy sector. When these investors buy or sell futures contracts for oil, it can affect the supply and demand balance of crude oil and thus its price. The futures market is another factor that affects the price of oil. Futures traders purchase contracts to buy or sell oil at a later date, which impacts crude supply and demand levels. Speculation on OPEC production cuts can also have an effect on oil prices, as can political unrest or economic sanctions against certain countries. Weather and natural disasters are another important factor to consider when discussing financial market dynamics. In some cases, extreme weather conditions can lead to disruptions in production, supply chain issues, or increased demand due to cold snaps or heatwaves. Natural disasters such as hurricanes or floods can also cause major disruption to infrastructure and temporarily reduce supplies of certain commodities including crude oil. Finally, global economic outlooks may influence both investor sentiment and consumer spending patterns which could lead to changes in demand levels for commodities like oil over time. As such it is important for businesses in the energy trading industry to stay up-to-date with global developments so they can make informed decisions when it comes to pricing strategies related to energy costs. Hedge Funds and Speculators Hedge funds and speculators are influential participants in the energy market. They are responsible for buying and selling oil contracts as well as futures to take advantage of price fluctuations. By doing so, they can make profits from their trades but also assume risk if markets turn against them. Moreover, their activities may be affected by external developments such as geopolitical events or economic sanctions imposed by governments. Therefore, it is important for investors to keep a close eye on these factors in order to make informed decisions about pricing strategies for oil-related goods and services. Futures Markets Futures markets are an important factor in influencing the price of oil, as they can provide a platform for buyers and sellers to make profits or protect against price fluctuations. A futures market is a type of financial market that enables participants to buy and sell commodities, such as oil, at predetermined prices for delivery on a future date. In the energy sector, large institutional investors and hedge funds use futures markets to speculate on the direction of oil prices. By buying contracts today with an expectation that prices will rise in the future, these investors can increase their profits from rising oil prices. On the other hand, hedgers use futures markets to protect themselves from unexpected drops in price by locking in current prices for delivery at a later date. Speculative activity in futures markets can lead to large swings in the price of oil because participants have greater influence on pricing than actual demand and supply. This means that speculation can cause oil prices to move independently of actual supply shortages or excesses. Regulatory bodies also use futures markets to set limits on trading and production levels, which impacts prices and volatility levels. For businesses involved in energy trading it is important to keep track of developments in futures markets as these movements can have significant impacts on pricing strategies. Businesses should also be aware of speculation by large institutional investors who are looking to profit from changes in oil prices over time. Understanding how these activities are impacting market sentiment will help businesses make informed decisions about pricing strategies related to energy costs. Global Economy: The global economy is a major factor in the fluctuating price of oil. Investor confidence, currency values, GDP growth and trade disruptions all have an impact on pricing. Additionally, as alternative energy sources become more accessible and affordable they can contribute to a decrease in demand for traditional fossil fuels such as oil. Companies involved in energy trading must stay informed of these developments to ensure their goods and services related to energy costs remain competitively priced. Currency Values The value of a country’s currency can have a direct impact on the price of oil, with fluctuations in exchange rates influencing import costs and buying power. A stronger currency will enable an importing nation to buy more oil for less money, whereas a weaker currency will require more of the local currency to purchase the same amount of oil from other countries. Currency devaluation can also affect the cost of imported goods, as it reduces the buying power of a nation’s citizens and businesses. This means that each dollar or euro is worth less on the global market and makes it more expensive to purchase foreign-made goods, including oil. If countries devalue their currencies, they may have to pay higher prices for imports, which could cause oil prices to rise as well. On the other hand, when a country’s currency appreciates in value, it can help reduce import costs and increase buying power. This makes imported goods cheaper for consumers and businesses alike, which could lead to lower prices for oil in those countries. In addition, appreciation of a nation’s currency can make its exports more attractive to foreign buyers who can now obtain them at relatively lower prices than before. This could help drive up demand for domestically produced crude oil and result in increased revenues for exporting nations. When considering how currency values can influence the price of oil, it is important to remember that these effects are often short-term in nature and only apply when purchasing from abroad. Furthermore, changes in exchange rates are not necessarily an indication that domestic production costs have changed significantly - rather they reflect shifts in market sentiment towards one particular currency compared with all others around the world. Therefore companies should remain aware of current exchange rate trends while also monitoring their own costs over time so they are able to adjust pricing strategies accordingly depending on changing market conditions Oil is now the biggest staple on the world stage. Its importance is difficult to overestimate. The entire economy is based on indicators related to oil. But time passes and the economy changes its face and new favorites enter the arena. Traders, if you liked this idea or if you have your own opinion about it, write in the comments. 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TVC:UKOILEducation
by Lingrid
10
Producing Recurring Income in GoldGold has long been a darling of investors. Its holders - whether households or central banks - seek refuge in the yellow metal in times of crisis. Gold is a resilient store of wealth, offers durable portfolio diversification, exhibits lower volatility relative to equities & bonds, and serves as an inflation hedge. But it has a big downside. As mentioned in our previous paper , gold pays zero yield. Shares pay-out dividends. Debt earns interest. Property delivers rents. But gold? Zero! There are multiple methods of generating yield from gold. This paper illustrates a risk-limited, easy to execute, and capital-efficient means of producing yield by investing in gold. Innovation in financial markets enables even non-yielding assets such as gold to produce regular income. A class of derivatives known as call options can be cleverly deployed to generate yield. Call options are derivative contracts that allow its buyers to profit from rising prices of the underlying asset. When prices rise, call option holders earn outsized gains relative to the options price ("call premiums"). Unlimited upside with limited downside describes the call option holder's strategy in summary. What has that got to do with generating yield in gold? Everything. For every buyer, the market requires a seller. Options sellers collect call premiums which comprise the income. Many widely believe that options are weapons of mass wealth destruction. Not entirely wrong. Used poorly, options devastate investors' portfolios. Deployed wisely, options help astute traders to better manage their portfolio, generate superior yield on their assets, and construct convexity (disproportionate gain for fixed amount of pain) into their investing strategies. Fortunately, a covered call is a strategy which uses options prudently. As the strategy involves holding the asset whose prices are expected to rally, the risk of the strategy is hedged with risks well contained. Gold Covered Call involves two trades. A long position in gold and a short position in out-of-the-money gold calls. In bullish markets, investors gain from call premiums plus also benefit from increase in prices. Covered calls not only enable investors to generate income but also reduce downside risk if asset prices tank. A covered call trade in gold can be implemented in a margin efficient manner using CME’s Gold Futures and Options. A long position in CME’s Gold futures (“Gold Futures”) gives exposure to 100 troy ounces (oz) of gold per lot. Combining long futures with a short call option on Gold Futures at out-of-the-money strike allows investors to harvest premiums. Selecting an optimal strike and an expiry date is critical to successfully execute covered call strategies. First, Strike. It is the price level at which the call option transforms to be in-the-money. Strikes which have daily volumes & meaningful open interest enable options to be traded with ease and provide narrow spreads. Strikes that make options expire worthless benefits the covered call options holder. Second, Expiry. Options have expiry. Options sellers thrive on shrinking expiry for generating yields. Investors selling call options optimise their risk-return profile by selecting an expiry with higher implied volatility (IV). Option prices are directly proportional to IV. Higher IV leads to larger premiums enriching returns. SIMULATION AND PAY-OFF MATRIX This paper illustrates a covered call strategy in gold using the CME Gold derivatives market: 1. Long one lot of Gold Futures expiring in Oct (GCV3) at $ 2,050/oz. 2. Sell one lot of Call Options on Gold Futures expiring in Oct at a strike of $ 2,275 collecting a premium of $ 40/oz. The pay-off matrix simulates the trade P&L under four likely outcomes among many possibilities at trade expiry: a. Gold rises past the strike ($ 2,400): Options get assigned to the buyer. Covered call option holder incurs loss of $ 85/oz (=$ 2,400 - $ 2,275 - $ 40) from short call offset by profits from long futures ($ 350 - $ 85) = $ 265/oz. Each GC contract has 100 troy ounces of gold, so total profit will be $ 265 x 100 = $ 26,500. b. Gold rises but remains below the strike ($ 2,250): Options expire worthless to the buyer. Seller retains premium in full. Covered call option holder profits from long futures + call options premium ($ 200 + $ 40) = $ 240/oz. Each GC contract has 100 troy ounces of gold, so total profit will be $ 240 x 100 = $ 24,000. c. Gold price falls marginally below the entry price ($ 2,030): Options expire worthless to the buyer. Covered call option holder loses money from long futures and thankfully the loss is offset by call options premium (-$ 20 + $ 40) = $ 20/oz. Each GC contract has 100 troy ounces of gold, so total profit will be $ 20 x 100 = $ 2,000. d. Gold price falls ~5% below the entry price ($ 1,950): Options expire worthless to the buyer. Covered call option holder loses money from long futures and the loss is partially offset by call options premium (-$ 100 + $ 40) = -$ 60/oz . Each GC contract has 100 troy ounces of gold, so total loss will be -$ 60 x 100 = -$ 6,000. The chart below describes the pay-off from Gold Futures (Long position), Gold Call Options (short position) and Covered Call (combination of the two trade legs). MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
COMEX:GCV2023Education
by mintdotfinance
3