Using Gold to Monitor Market's Reaction to QE2: Eldora Gold Resources News

Eldora Gold Resources Canada News- a Wall Street Journal article today on quantitative easing (QE) hints the Fed will take a middle of the road approach in terms of the size and duration of QE2. As we would expect, the stock and commodity markets’ initial reaction is negative. A middle of the road approach to QE seems counter intuitive to the Fed’s own historical analysis of why quantitative easing was ineffective in Japan. In CCM’s July 2010 review of James Bullard’s Seven Faces of “The Peril,” our read between the lines interpretation of Bullard’s take on QE included:

In order for quantitative easing to sufficiently increase future inflation expectations, market participants must believe the Fed will do “whatever it takes for as long as necessary” to obtain the objective of sufficiently positive inflation. This means the Fed must be willing to leave balance sheet expansion in place for as long as necessary to create expectations of higher future inflation by market participants (consumers, investors, companies, etc.). This reminds us of past “bazooka-like” policy moves, where policymakers would say, “You think we can’t create positive inflation? Just watch.

Eldora Gold Resources Canada News- The key to next week’s Fed statement on quantitative easing will be how they address the concept of “whatever it takes for as long as necessary.” We can use gold and the US dollar to monitor the market’s reaction to QE2 and the stock market. On October 11th in U.S. Dollar Could Rally In Coming Weeks, we hypothesized QE2 could be a “buy the rumour, sell the news event” relative to risk assets. Since October 11th, the dollar index has moved from 77.18 as high as 78.36; a move above 78.36 would increase the odds of the US dollar having a multi-week countertrend rally.

On October 13th with the S&P trading at 1,169, we listed 1,196 as a possible short-term upside target. The S&P 500’s intraday high on October 25th was 1,196, which means we have entered a zone where the odds of a short-to-intermediate-term reversal have increased (emphasis on odds). Stock market breadth on October 26th was weak, adding to the list of concerns over the next few days.

Eldora Gold Resources Canada News- We recently mentioned some yellow flags in the gold market. Thus far, gold is holding up well enough that a push to new highs still could be in the cards. From a short-term bearish perspective, a break of the thin blue trend line below would increase our concerns about a correction in gold. The long-term fundamentals for gold remain sound.

As we monitor gold, QE and the dollar, we must also consider the possible impact on "weak dollar assets" such as gold, silver, copper, oil, agricultural commodities, Australian dollar, Canadian dollar, and emerging markets.

Video: What Is Quantitative Easing?

Eldora Gold Resources Canada News- In parts three of our six part series on quantitative easing, we examine Fed statements, writings, and publications related to the objectives of, and rationale behind, QE2. The analysis of some key Fed commentary on quantitative easing allows us to better understand the Fed’s perspective relative to QE’s possible impact on the financial markets, investing, the economy, interest rates, asset prices, and the wealth effect. Today’s quantitative easing video also touches on the following:

• Duration of QE program
• Consumption
• Investment
• Ben Bernanke’s “printing press” speech
• US dollar devaluation
• Fiat / paper money system
• Spending
• Inflation
• Dividend-paying securities (video link below)

Disclosure: Author long GLD, UDN, SLV, JJC, DBA, FXA and EEM

About the author: Chris Ciovacco. Chris began his investment career with Morgan Stanley in Atlanta in 1994. With a focus on global macro investing, Chris uses both fundamental and technical analysis to assist in managing risk while looking for growth opportunities around the world in all asset classes.

Benefits of Public Bank Gold Investment– Eldora

It is important to research and evaluate each of the gold investment companies under consideration. There are many gold investment scams, fraud, boiler rooms that you should watch for, this will serve as a good warning before investing and only use gold options and companies that are verified, and have a good business reputation. This will minimize the risk of falling prey to any boiler rooms, scams or frauds.

Gold stock investments are often included in the portfolio of investment companies which specialize in gold and other precious metals. Because the gold investment companies are simply the managers and investment advisors for the pooled funds of the investors, each investor will share in any gains seen in their share of the portfolio. For some investors using a gold investment company makes great financial sense, while other investors should steer clear of these choices.

A public bank gold investment offers many benefits that are attractive to a wide range of investors, although these options may also have some disadvantages as well, depending on the public bank chosen. This is a great way to invest in gold bullionwithout having to turn your home into Fort Knox or pay excessive storage fees. The bank stores the gold for you, in the amount equal to the value of your gold bullion securities account.
When you choose a public bank gold investment then quality is another benefit. You are assured that only investment quality gold is used to secure your account, such as PAMP Suisse gold bullion and other well known types. This is important because the gold is a guarantee of your capital, and if low quality metal is used then the value of the metal may be significantly less than what is shown on paper.
If you are going to open a public bank gold investment account, you have the choice of two types, allocated or unallocated. Allocated is the better choice for almost every investor, because these accounts offer more benefits. The amount of gold equal to your account balance is specifically allocated to you, and can not be used for any other purpose. Credit Suisse gold bullion or another top quality and name gold product is usually used with these investments, and you can take possession of the bullion at will.
If you are thinking about a public bank gold investment, there are several benefits. These accounts allow you to buy gold conveniently, without worrying about security or storage. Many investors prefer these accounts, and consider them the best gold investment possible. Some investors avoid a public bank gold investment account though, preferring to hold the metal personally. These investments can be a fantastic choice for many investors, but they are not right for everyone or every situation. 

How to Buy Gold for Investment – Eldora Tips

Eldora Gold Tips on How to Buy Gold - Lack of knowledge about how to buy gold can hamper your aspirations of investing in this precious metal and be able to stay away from scams and investment frauds of boiling room callers. Going through this article will help you in getting the basics of gold investment right, and thus make some profit by trading in gold.

Eldora Resources Tips: The price of gold in the international market has increased manifolds over the last decade or so, thus making it the first choice among the precious metals when it comes to investing money. Buying gold for investment generally refers to buying gold bullion. (Gold bullion is a collective term used for gold bars and gold coins.) Though buying precious metals, especially gold, is one of the best available investment option, it differs from buying stocks and bonds to a significant extent. That tends to leave people confused about how to buy gold and silver bullion for the purpose of investment. If you are planning to opt for gold investment, there are certain options you can choose from.

How to Buy Gold for Investment

Buying gold helps in improving your asset base, and also offers financial security from problems such as inflation. Gold bullion, i.e. gold coins and gold bars come in various sizes and weights. Before investing in gold, you need to study the current prices of this metal, as well as the trend of the rise and fall in gold price in the past. You will also have to follow some simple tips for buying gold bullion: the bigger gold bars you buy, the lesser per ounce premium you have to pay. Let's move on from the generic information and get into the details of the buying gold coins and gold bars.

How to Buy Gold Coins?

These gold coins are priced on the basis of their weight. Some of the most popular standard gold coins include the American Gold eagle and the South African Krugerrand. You can either buy these coins from the government or from the private firms, the former is much more trustworthy though. However, there is an advantage of buying these coins from a local dealer as it helps in establishing a relationship between with them, which can be helpful when you would want to sell these coins. Even though there wouldn't be much of difference in the value of gold coins with two different dealers, it is ideal to compare the prices before opting to buy from a particular source.

How to Buy Gold Bars?

When we talk about how to invest in gold, gold bars is bound to be the first thing to strike our mind. In some countries gold bars can be bought from the major banks, while other countries have licensed dealers for the same. Generally, the preferred sources to buy gold bars from are gold dealers, mints and foundries. Other methods of purchasing these bars include auctions and individuals. Whichever source you buy gold bullion from you need to make sure that they are established and, more importantly, accredited. It is always better to take some efforts and check the history of the source. Don't forget to check for the shipment charges. You can either hold these bars in your own possession, or keep them in a safety locker of a bank on your behalf.

Other than these methods you can also invest in gold by investing in precious metal mutual funds, an ideal option for high investment as far as precious metal trading is concerned. Even having the basic idea about how to buy gold for investment can help you in minimizing the risks associated with the process. Investment is a part of your future planning, and therefore these gold investment vehicles need to be chosen wisely. That being said, it is always an advantage to take advice from a stalwart of the field, who is well versed with financial planning and the ups and downs of the market.  By Abhijit Naik

Eldora Gold Resources News-Gold's Insurance Cost Index Explained

Eldora Gold Resources News-By Brad Zigler. We've expounded on the option market insurance model in this column before. In their most basic utility, options offer investors protection from catastrophic changes in asset values, just like homeowners, automobile and — gulp! — Life insurance contracts.

And just like other insurance markets, option prices are determined in part by the issuers' perception of risk. When the odds of a payout increase — because of increased fire hazards, a poor driving record, disease or wobbly asset values — the cost of protection rises.

For years now, professional traders have gauged risk in the investment market by metering the volatility assumptions embedded in option prices. The Volatility Index (VIX) measures the expected variance in the stock market over the ensuing 30 days by extracting the implied volatility of near-term options on the SPDR Depository Receipts (SPY).

Eldora Gold Resources News-More recently, the VIX concept has been translated to the oil and gold market. The CBOE Gold Volatility Index (GVZ) has been tracking risk expectations in the gold market by distilling the "IV" ("implied volatility") SPDR Gold Shares Trust (GLD) options for the past couple of years.

Presently, GVZ pegs the annualized volatility of the gold market at 20 percent. Is that high or low? Well, it's certainly higher than it was. Last month, anyway. Back in September, when gold was reaching new nominal highs, GLD volatility dipped as low as 16.7 percent.

The implication? Back then, option traders were pricing contracts with the expectation that gold prices proxied by GLD would likely vary — up or down — 1.4 percent (16.7 percent divided by 12 months) over a 30-day period.

When GVZ — aka volatility — is high, writing (selling) naked options and credit spreads are more likely to make money. When GVZ is low, debit spreads and naked option purchases are favored.

Relatively speaking, buying GLD options would have been the play in mid-September. If you were exceptionally prescient, you would have bought calls for a month-long, $130-an-ounce ride up Bullion Mountain.

GVZ peaked at 22.6 percent — along with gold prices — on Oct. 14. GVZ then signalled a heightened risk of change in gold's price trend. Now GVZ's falling along with gold prices, indicating certain market complacency with the trend.

The Gold Insurance Cost Index measures the risk of price trend changes as well and, as you can see from the chart below, pretty much tracks alongside GVZ. The insurance index is derived by comparing GLD option premiums to SPY contract costs. Each day, puts with at least eight weeks ‘til expiration and each 10 percent out of the money are rationed: the GLD put premium in the numerator and the SPY premium down below. The daily change in the resulting percentage is then indexed to a base level. In the chart below, the starting date is arbitrarily set as July 23.

Eldora Gold Resources News - The essential difference between the two metrics is volatility itself. The insurance index is more sensitive and generally renders its peak and trough signals a day or two sooner than GVZ. Time can be a great advantage to a trader — or a hedging investor — giving insurance index followers a bit of a jump on GVZ watchers.

Of course, tracking GVZ is easy. No calculation is required. Its value can be pulled up in real time along with any other market quote.

Which indicator you choose to follow is purely a matter of personal preference. Disclosure: No position

About the author: Hard Assets Investor  Hardassetsinvestor.com (http://hardassetsinvestor.com/) is a Van Eck Associates-sponsored, research oriented Web site devoted to sharing ideas about hard assets investing.