Yesterday, we went to sleep having closed all of our gold buys and some of our sells (decreasing draw down from 40% earlier in the day to 2%) and were feeling very optimistic. Especially with indices futures showing Asia and Europe poised to open green and take us into further profit.
Unfortunately, we woke up to the surprise that the PBOC had fixed the yuan at the weakest rate in 6 weeks, which made the market have kittens as “one again they were concerned over the growth of the world’s second largest economy.” This led to a bid of safe haven assets (Gold, silver, JPY, sovereign bonds) and left us with a draw down of 50%. So we acted and repositioned ourselves to go net long on Gold and sell audusd (thinking the AUD would suffer as it usually does when there are concerns in China,due to its trade partnership.) The AUD did not work and looked poised to go against us, so we closed it at a small loss (thankfully since over the course of the Europe session it just kept rising). However, our Gold positions worked like a dream and we annihiliated our drawdown. Then in a split second, for a reason I do not understand, Gold sank back to 1215.99 (hitting our SL by one pip) and then jumped back to 1224…. A potential 12,000 USD profit turned into a 5,000 USD loss. We bit our tongue over our bad luck and persevered but were left with 50% drawdown of deposits. More bad luck followed and many random spikes like the one above (I counted 8 such incidents today) but we did our best and managed to guard the account limiting drawdown to 32% of deposits. (From 88,000 in deposits, equity is currently 60,000).
Our HF Plan:
I am not too worried as I believe gold is currently valued so high due to the market saying “no action from the fed this year” and that stimulus from the ECB and BOJ will also drive down its value. I do not agree with Goldman and others who say Gold will fall back to 1000 in Q1 2016 (remember all their parity calls with EURUSD and OIL falling to 20 before December 2015 calls), but I do believe it can fall to 1100’s. As quickly as the thought of no action from the central banks made gold rise, action from them will make it fall and I feel the target of 1170 is realistic one for us.
I base this trade on my fundamental assumptions that:
- We will see the FED act at least twice this year.
- We will see the ECB ease in March.
- We will see the BOJ add stimulus in March.
In short my fundamentals are 90% of what I have, so if they fail and all my assumptions are wrong, then we are up the river without a paddle in any case. So I am going to go for it. With our current set up, unless Gold spikes up to 1500 next week, we should be very safe as I have plenty of firepower left to reposition our trades to protect us from the trend going against us (like we did with JPY two weeks ago) and and if we hit our target will have a profit of $120,000, taking our account equity of $200,000 effectively giving us the ability to trade for up to 900 lots ($90m USD) which will open a wealth of opportunities. So that is what I am going to aim towards. If we keep letting the market scare us, we will not get anywhere. We have to try.
Hope you all agree,