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Order Your Copy Of The 2010 Commodity Trading Guide Now

Published by the Hightower Report, the Commodity Trading Guide is a must-have resource for anyone interested in the commodities market. It serves as a valuable reference throughout the year. A $20 value, it is available to you COMPLIMENTARY, compliments of RJO Futures. It contains:

• Relevant, timely special reports
• Fundamental and technical analysis for each futures market
• A calendar with key report release dates and times for each futures market
• A reference section with a world crop calendar, options strategies, contract specifications, trading hours timetables, futures and options expirations, a comprehensive glossary and conversion tables & formulas

Order your copy now.

Two years ago gold was $700 per ounce. Many analysts speculated that the price could go no higher. They were all wrong, evidenced by the fact that gold surpassed $1,200 per ounce. The unprecedented movements in gold raises a few questions for the average investor, specifically, is it too late to invest in gold and how can I participate in the gold market?

The precious metal reached an historic record high of $1225 in early December. As fast as it went up, however, it gave in a bit as markets across the world headed into the second week of December. Prices fell below the $1140/oz. mark, and it is now trading around $1129.50, considered a sizeable dip for an ounce compared to the peak prices earlier this month.

So where is gold headed? Is gold price on a 'bubble,' as the Chinese central bank warned last week? Bearish analysts also considered levels of $700 a 'bubble.'

And how can price action in both directions provide fresh opportunities in the futures markets?

What are the Price Drivers behind Rising Gold Prices?

Before investors flock to gold near an all-time high, it is beneficial to understand what factors drive gold prices. Currently the US dollar, lingering economic fears, and foreign demand are the key factors that determine the price of gold.

The US dollar has, and will continue to be the driving force in the price of gold. Excess government spending and trillion-dollar deficits are pressuring the US dollar. As the value of the U.S. dollar falls, commodity prices rise because it takes more dollars to purchase commodities. If the dollar continues to fall, gold prices will continue to create new highs. On the other hand, if the dollar rebounds then gold prices will fall. The weakness in the USD has had a large effect on the gold market. Individuals are fearful to hold deposits in dollars and foreign governments are looking to diversify their holdings as the United States government increases the national deficit.

Whether or not they believe that the recession is over, or if they are trying to protect themselves from a double dip, investors are increasingly looking to gold as a safe haven. Gold is understood because the physical form is tangible, and it has been used as a form of currency for thousands of years. While it may not always be the best investment, there is a floor on how far it can decline in value because of its limited supply and intrinsic demand. (Because they are not subject to the typical traits of currencies, gold and silver are sometimes seen as 'stable.' So, when the dollar drops gold is not affected in the same way, hence it is seen to be more valuable in its own right). Its value is widely supported making gold a popular commodity.

Chris Miller, senior trading advisor for RJO Futures, says "Gold has historically been a flight- to-quality trade during economic adversity. Recently we've seen some pretty adverse times and gold making all time highs of $1200 per ounce is proof of just how bad world economic sentiment is. Gold futures provide investors an easy way to protect their portfolios from inflation, as well as provide investors with safe store of value." Yet, it is not only investors that are looking at the luster of gold.

Central banks around the world are keeping rates low, infusing more stimuli into the economy, and buying up International Monetary Fund gold. That ought to give a good indication that the dollar is going lower, and gold is going much higher. When the world becomes a more stable place economically, financially, and politically, then one would expect people to back off from gold -- which means, it is probably not going to occur anytime soon -- and prices could reach levels over $2000. China has been a driving force behind the rise in gold, as the country is diversifying from their US reserve holdings and into gold. Additionally, China has recently been encouraging its citizens to purchase more gold and silver. China is not only purchasing physical gold from the IMF, they are also increasing their domestic production. Last year, China surpassed South Africa as the world's largest gold producer. The Chinese demand for the precious metal is not slowing down. In addition, China is not the only country, which is increasing its gold reserves; India is also looking to increase their reserves. When the IMF said several months ago that it would auction off 403.3 tonnes of gold, the presumed buyer was China, which is desperate to diversify its reserves away from US dollars. Instead, it was India that snapped up 200 tonnes from the IMF.

Potential Opportunities

The demand for gold is increasing from investors as well as foreign governments. Economic fears and the desire for a balanced portfolio increase the luster for the shiny commodity. Whether or not gold will retrace lower with a rebound in the dollar, it will be important to keep gold on your trading radar. Regardless of the direction of gold, an RJO Futures advisor can explain all of the opportunities in the gold market and create a trading plan that meets your investment needs.

RJO Futures offers many products and services that may allow you to take advantage of price discovery in gold by using gold futures and options. For any recommendations on gold, please contact Chris Miller, a senior trading advisor for RJO Futures, at 866-397-8194, or email him at cmiller@rjofutures.com.

December Gold, Daily


If you cannot view the Gold Chart, go here.
Source: RJO Vantage

Disclaimer: The risk of trading is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Futures trading involves risk of loss. Trading advice is based on information taken from trades and statistical services and other sources which R.J.O'Brien believes are reliable. We do not assure that such information is accurate or complete and it should be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no assurance that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future trading results.

Order Your Copy Of The 2010 Commodity Trading Guide Now

Published by the Hightower Report, the Commodity Trading Guide is a must-have resource for anyone interested in the commodities market. It serves as a valuable reference throughout the year. A $20 value, it is available to you COMPLIMENTARY, compliments of RJO Futures. It contains:

• Relevant, timely special reports
• Fundamental and technical analysis for each futures market
• A calendar with key report release dates and times for each futures market
• A reference section with a world crop calendar, options strategies, contract specifications, trading hours timetables, futures and options expirations, a comprehensive glossary and conversion tables & formulas

Order your copy now.