Gold

My friend Lou and I brought a gold future contract about 10 days ago. Actually we didn't buy anything, we just entered into a contract that said we would buy 100 oz of gold from the person on the other side of the contract for $493 per ounce at the end of February, and we had to put up about $2,300 in margin reqirement. We sold out of our contract Wednesday at $513 per ounce. So we made $20 per oz on 100 ounces or $2000, and our margin deposit was returned to us.

Lou and I make an interesting team because Lou favors a technical approach, discerning patterns in the market activity and timing sales and purchase according to these patterns.
I on the other hand just think gold is going to increase substantially in value over the next couple of years (to $1,000 maybe $1,500 per ounce)

If I'm correct, I might buy four ounces of gold for $2,300 and hold if for a year and then I'd have
$4,000 or $5,000 dollars worth of gold. But we made the same profit in just over a week by using the futures market. This is because the future market provides substantial leverage.
We locked up $50,000 worth of gold for $2,300. We didn't own the gold but we earned the
the profit when the current market price went up from $490 to $511.

Because of this leverage, futures trading can be risky. If the price of gold had gone down $20
per ounce it would have eaten up or margin deposit and we would have been closed out of our contract and would have lost our "deposit". Just like in telling a joke, "timing is everything."
Gold had recently run up from around $470 to around $540 per ounce, but we didn't want to buy at the top of the range. We hoped the price would come down some to where we could buy it, and then go up again. Lou did some figuring (mostly with historic ranges and Fibonacci numbers) and came up with $492 as a good support level for the February contract, so we put in our buy order at $493. Worked like a charm, the price per the Febuary gold contract came down to $492.5, and started back up. We were in like a couple of burglars.

We had a target price of $520. The Feb contract price had reached $519, then started trading down and Wednesday morning dropped $3 an ounce from $516 to $513, and we sold out.
Darned if the price for the Feb contract didn't bottom out at $513, where we sold and go back to $519.5 at the close on Friday. No regrets on the sale...sometimes big traders with a whole lot of resources will start selling future contracts driving the price down to where stop loss orders are triggered and the price takes on a downward momentum. ("When elephants fight, mice get trampled") We were also cautious because the price had closed higher four days in a row, and even in a good market you don't expect the market to close higher more than five days in a row.
Now we have to figure out where to buy in again.

The other reason I don't feel bad about selling out on Thursday is that Wednesday we went short the Dow Jones Industrials with a mini contract where you make (or lose) $5 for every dollar the Dow Jones Industrial Index goes down (or up) and the index dropped 112 ponts Friday. We went short because a Fibonacci series indicated there woud be a trend change on December 27th or 28th. Then the "yield curve inverted" on Wednesday, usually bad new for the stock markets. So we made enough there to compensate us for missed profits on gold

PS
The reason I'm confident gold is going to go up in price has to do with the nature of money.
I'll explain more about that later.

Andy