Market Movers: Gold vs. U.S. Dollar Outlook

Market Movers: Gold vs. U.S. Dollar Outlook


– Jim Iuorio: Welcome to Market Movers, I’m Jim Iuorio with Scott Martin. – Scott Martin: Hi, Jim. – Jim Iuorio: Scott, the dollar and gold have been in focus. The dollar has been in particular focus since the Fed has pivoted to more dovish. They’ve rallied together. Why has that happened? – Scott Martin: I think it’s the risk off trade, Jim. And I think it’s investors looking for some sort of alternative, aside from the rocketing bond prices, certainly aside from the volatility that’s been in equities. And let’s face it, they’ve gotten some nice diversification from both gold and the dollar. – Jim Iuorio: Can it continue? – Scott Martin: Yes, it can, because of the fact that we’re in some uncharted territory, certainly when it comes to bond yields. But I believe, also, when it comes to expectations for equities going forward when it comes to the trade wars and its effect on earnings. – Jim Iuorio: Now, before we dive into our trade discussion, I’d like to point out that these are examples, not recommendations or advice. When I priced this out, the October gold was trading about 1544. – Scott Martin: Yeah, Jim, I like looking at GC, gold especially as an alternative asset class, when you’re invested in things like fixed income and equity, because of that diversification non-correlation value it can bring. However, given the run that we’ve seen in GC– – Jim Iuorio: Amazing run.
– Scott Martin: Amazing run. There’s got to be a little bit of gravity, I think, in GC. Now, I’ve been wrong about that, admittedly, for the last few weeks. But I’m going to try it again today as an example specifically. Jim, looking at buying the week 1 Sep 1520-1500 put spread for 4.5 ticks. This trade risks $450 to make a potential $1,550. It expires on September 6, so there’s not a lot of time in this one, maybe one that you want to manage if you put it on. The underlying is 1544. Just because I believe, you look at a chart, you look at RSI, you look at MAG-T, you look at just general linear regression, it looks like GC is a little bit overdone to the upside. I believe a put spread is a nice way to express yourself a little bit, as far as a hedge, to maybe equities bouncing from here. – Jim Iuorio: There is zero doubt in my mind that when you look at it, technically, gold is extended. It’s had a Herculean run. There’s no question about it. I’m not convinced that that run is over yet, because I look, it’s what’s happening globally. And I’m going to ask you about that compared to other currencies in one second. So, I’m looking at it differently. As example, I’m buying the week 1 Sep, the same expiration date, September 6, the 1560-1580 call spread for 4.5 ticks. It risks $450 to make $1,550. Mine is the mirror image of your trade, exactly. Both of them are 20-tick wide spreads. Both of them cost 4.5 ticks. You’re going to tell me my direction is wrong. But do you like the expression? And consider that the reason I want to make it relatively tight spread is because it’s gone so far. That’s why I want to define my risk. – Scott Martin: Right, absolutely. And I think the expression is fine in the sense of the risk reward. I do disagree with the direction. Mine, I like just a little better because of that 1,500 level on GC. I think gold just seemingly is going to pull back there, and then can bounce from there, and can go through your call spread, as well. It’s just in the near term, I think things are short term overdone. Given this is a short expiration, I want to protect myself a little bit to the downside in GC. – Jim Iuorio: Okay, back to the dollar as a relative currency. We have pivoted more toward dovish. The dollar has rallied, particularly against the euro, which has just been in the dumps. Are we worried at all, if we’re too dovish, that the dollar is going to lose some sort of status, globally? – Scott Martin: No, I don’t believe so. – Jim Iuorio: Because what’s going to replace it, right? – Scott Martin: Well, there’s nothing going to replace it. And things are pretty bad everywhere else in the globe. I mean, you think things are bad here, walk around the globe. I mean, the Brexit news, too, is probably pushing some pressure downward on the euro, as well. Certainly did on the pound. So, the dollar is probably safe in its druthers right now. – Jim Iuorio: I like that take. Thanks for joining us on Market Movers. I’m Jim Iuorio, where we are helping to make you a better trader.

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