
Regular readers will know it is our view that the US dollar is in
an uptrend. One way to capitalise on this is to sell gold. This has to do with
the fundamental belief that investors who flocked to gold as a hedge against
a damaged greenback in the wake of the Great Financial Crisis are now reversing
their positions. This takes a little time.
So we set the Omicron Forex Silver Trigger algo routine to monitor for opportunities to go short gold against the USD, especially after a retrace.
It looked
as if this opportunity had arisen yesterday (Thursday August 15th),
when the US
consumer price index (CPI) matched expectations and US jobless claims fell to
the lowest level since late 2007. All good for the expectation that Quantitative
Easing (QE) will be tapered soon, resulting in a resurgent dollar. So the
Silver Trigger initiated a trade.
All went
well until there was a lull in the firing, which encouraged us to move our stop
to break-even. This caused the routine to take off half the position.
That turned
out to be a very good move. The fall in gold started to reverse and this
reverse soon became a rout. It turns out that the market is now worried about
inflation. This could, indeed, be expected to result in a delay in raising interest
rates after QE has been stopped. However, this is a long time in the future,
certainly in market terms.
Here is
where gold wound up yesterday. A thin holiday market could also be a factor
here:
For us the
whole episode demonstrates the value of a conservative approach combined with algorithmic
trade management software that is able to handle such events in this way.
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