June 11, 2010 – Look at Gold in Yen

Featured Trades: (GOLD IN EUROS), (GOLD IN YEN)

2) Look at Gold in Yen. This is one of those 'I told you so' pieces, so if that sort of thing turns you off, read no further.  On May 26, I recommended that you buy gold against Euros at ¬970 (click here for the call ). Yesterday it hit ¬1,035. Since I have been flooded with requests to explain how to put this on, I'll try one more time. Buy $100,000 worth of gold and simultaneously sell $100,000 worth of Euros. On day one, both your long and short have equal value. Over time, if gold goes up and the Euro goes down, you make a profit. You even come out ahead if the Euro goes up, but gold goes up even faster. It is most efficient to do this through the futures markets, but don't use a 1:1 ratio because the amounts or gold or Euros underlying each contract are different. How much can this trade be worth? If gold continues happily motoring on to $1,500/ounce by year end, which many are now forecasting, and we get an overshoot with the euro to parity, that takes the gold/euro trade to ¬1,500, or up 55%. And while you're at it, you might want to buy gold against yen, which today is trading around 112,000. Get gold up to $1,500 and the yen down from ¥91.5 to ¥120, where it belongs, and that takes gold/yen to ¥180,000. I wouldn't necessarily strap this one on today because we've just had such a nice pop, but I would keep it on your radar.