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Good idea EE to keep the two threads seperate. Don't know too much about this so just here for information![]()
Do you trade FX?
No. Seen others trade.
NH - I am still confused as to how the hedging works.... is it just notional hedge for the gold you already have or do you buy gold and set the trades at the same time?
nh, you seem really knowledgeable have you studied this at uni etc or just got to know it yourself?
It's an actual hedge. I hedge 1000g of Gold Bullion at a time.
The principle is very simple. For every 1000g of Gold you will need to open a £5/pip position (g/200 ratio) going long on GBP/USD. Reason why it must be GBP is a] I buy Gold in GBP, and b] Gold price is settled via Comex (priced in USD). You can change the £/pip value, but £5 per kilo works pretty well.
When GBP strengthens, the Bullion price drops, but your FX position is in profit. When GBP/USD drops your position is in a loss but your Bullion price moves up.
Now, more than often the net effect is close to zero, (this is the hedge), but, you can rake in profit when the spread between Gold Comex USD and GBP/USD widens, meaning, when Gold Comex moves up and GBP/USD moves down - it's clear cut profit. That's when you close your position and lock your profits. (I then use my profit to buy more Bullion.)
The only problem with this method is a] you need at least £10000 to open a stable hedge (too small and you will get stopped out), b] A kilo of Gold, and c] profit can take time because generally markets move in the same direction but not at the same velocity therefore the spread between Gold and GBP doesn't occur too often.
You are essentially looking for opposite movement if you want to lock profit, otherwise, it's open and hold as a hedge.
I forgot, you need balls of steel too. FX movement working against you will challenge your emotions in ways you've never thought of.
NH how did you get started in FX? What kind of money were you starting with if you don't mind me asking.
It's an actual hedge. I hedge 1000g of Gold Bullion at a time.
The principle is very simple. For every 1000g of Gold you will need to open a £5/pip position (g/200 ratio) going long on GBP/USD. Reason why it must be GBP is a] I buy Gold in GBP, and b] Gold price is settled via Comex (priced in USD). You can change the £/pip value, but £5 per kilo works pretty well.
When GBP strengthens, the Bullion price drops, but your FX position is in profit. When GBP/USD drops your position is in a loss but your Bullion price moves up.
Now, more than often the net effect is close to zero, (this is the hedge), but, you can rake in profit when the spread between Gold Comex USD and GBP/USD widens, meaning, when Gold Comex moves up and GBP/USD moves down - it's clear cut profit. That's when you close your position and lock your profits. (I then use my profit to buy more Bullion.)
The only problem with this method is a] you need at least £10000 to open a stable hedge (too small and you will get stopped out), b] A kilo of Gold, and c] profit can take time because generally markets move in the same direction but not at the same velocity therefore the spread between Gold and GBP doesn't occur too often.
You are essentially looking for opposite movement if you want to lock profit, otherwise, it's open and hold as a hedge.
I forgot, you need balls of steel too. FX movement working against you will challenge your emotions in ways you've never thought of.
NH how did you get started in FX? What kind of money were you starting with if you don't mind me asking.
NH, you seem really knowledgeable have you studied this at uni etc or just got to know it yourself?
With this strategy you need £10K + 1 Kg of gold?
Can you please provide an example of successful hedging trade you have done recently?
What are the fees and commission like for buying and selling gold.
How much does the actual price you pay differ from Comex?
To me FX markets seem very random and chaotic. I can't really see how they can be analysed and patterns spotted. How do you go about this?
The first thing that came to me was that its quite a miserly return compared to what I have from just one share this year with similar upfront investment. Although you probably have much larger hedges and trades to give you a much more worthwhile return.
What forex companies you recommend?
@ nh, do you have any other positions open too or do you focus on this one play alone?
p.s. im a bit confused, would you mind explaining to me the rationale behind hedging your gold by going long on gbp/usd, wouldnt a strong dollar weaken bullion demand, and hence make losses on both your positions?
I have other positions, just on FX and Commodities (Gold, Silver, Oil, and Cotton)
There's no rationale, it's a simple mathimatical relationship.
If x cost $1000 and the exchange rate between GBP/USD is 2.0000, x will cost me £500
If x cost $1000 and the exchange rate between GBP/USD is 2.5000 [GBP is stronger, $ is weaker], x will cost me £400
If x cost $1000 and the exchange rate between GBP/USD is 1.5000 [GBP is weaker, $ is stronger], x will cost me £666
When £ moves up on GBP/USD, Bullion will cost me less, thus I will lose value on any Bullion on hold. (This is why I go long on GBP/USD)
When £ moves down GBP/USD, Bullion will cost me more, thus I will profit on Bullion I on hold. (This is why I do not care if markets tank)
Am I right in thinking, that all you need to do is attempt to successfully forecast GDP, inflation, etc., to know when to place your chips?
Why do you think they will tank?
So what happens after all the currencies tank? How do I go to the shop and buy a bar of chocolate?
If you are not hedging, then yes. You need to forcast GDP, Inflation, Job numbers, etc, not just for UK, but for USA too (assuming you are going to trade on GBP/USD)
Though it doesn't take a genius to figure out that between the $/£/E/Y, it's a race to the bottom. Paper currencies will tank, just a question of which one will collapse first.
You really think it'll happen soon? Is the reason why Amero was being considered in North America because of the decrease in Dollar purchasing power?
I find it quite hard to believe that all currencies and therefore all countries will find themselves going the way of Zimbabwe.
It's quite obvious they will collapse as they have done before. One story, as apocryphal it may be, has it that after the collapse of the Weimar Republic, an elderly woman was pushing a wheelbarrow full of marks to the store to buy a loaf of bread. When she turned back, someone nicked off with the wheelbarrow and left the money behind, i.e., paper money is only as strong as the government printing it.
Yes.
Name me a paper currency that has survived for over 100 years? Every paper currency has died a painful death.
$ and £ survived this long because up to 1974 they were backed by - you guessed it - Gold and Silver. This meant that there was a limit on how much could be printed. if the government didn't hold enough Gold/Silver, they couldn't print currency. Then Nixon, in order to fund the Vietnam war, abolished the Gold standard. This allowed the US government to print the $ at whim, with no control.
The proper name of the British currency is not Pound, but Sterling (as in Sterling Silver)
You know what a 'Dollar' is? It's a unit of Silver.
Take a look a Sterling note, it says at the top, 'I promise to pay the bearer the sum of'. This meant back in the day you could take your currency and exchange it Silver, not anymore, now paper currencies are just worthless promises.
Since 1970s, both $ and £ have decreased in value since they were detatched from the Gold/Silver standard.
Very informative post. Coincidentally, this can also explain the Caucasian governments' lust for oil. They see it as a get-out clause from this mess they have got themselves into.
A glance at the balance sheets reveals the true nature of this sick fascination with Iraq, Iran and Libya. "Operation Iraqi Freedom", my ****!
NH - thanks. Your idiots guide to forex and hedging is very useful.
In an economic collapse of such proportions that is being talked about here, the minorities always cop it first and that would most probably mean we be targeted first. If someone knows NH has a stash of gold in house... well then you can imagine what will happen. How will we trade that gold in such scenarios?
china is buying huge amounts of precious metals, i woudnt be surprised if they try to issue a gold back reserve currency to rival and eventually replace the dollar, no one could estimate how expensive gold will become then, it wouldnt be surprsing to have a dowjones at 50,000 with that too.
from my own judgement i have always seen the paper money system to have one main objective. since you cannot keep increasing your wealth, to become richer (in terms of paying people to work for you) you must make the masses poorer.
paper money allows a minority group of people who know the rules of the game to get richer relative to the poor masses without creating anything real and in the process essentially indenturing the masses.
maybe im exaggerating a bit for effect, but that is the crux of the situation in my opinion.
You can call the system Economic Enslavement
enslavement is a strong word, you have no choice of freedom if you are enslaved. in this situation you have two choice, first to grow your own capital to maintain your purchasing power as nh said, and second is to seperate the printing of money from politicians who abuse this right.
enslavement is a strong word, you have no choice of freedom if you are enslaved. in this situation you have two choice, first to grow your own capital to maintain your purchasing power as nh said, and second is to seperate the printing of money from politicians who abuse this right.
The first point could be valid, but the lack of financial literacy in the British curriculum, as far as I know, is all too apparent.
When we first start work, we are duped into credit card schemes(scams), bad bank loans, etc; to encourage lavishness that would otherwise be beyond our means. This is normally the effect of peer pressure, which is collaborated with the indoctrination of 'social norms', perpetrated by the British entertainment industry and its main ally, Hollywood. It is just one ginormous capitalist-spun web, we are the flies and its spiders are the bankers. And before you begin to utter it, yes, it is a conspiracy, but not a theory.
i dont want it to sound like doom and gloom, because this system has been evolving for 300, 400 years since the dawn of the debt based economy. purchasing power has no doubt decreased but mature management of debt is an indispensible part of finance.
Depends on your definition of evolution. If you consider mutations a process within evolution, then the current debt crisis can be depicted as all of Magneto's baddies from the film, X-men. Although, how can you call it evolution, when there is no evolvable system there? The combination of Fiat Currency and interest is one of the biggest deceptions known to mankind.
the problem starts when you create a link between the people who have the right to create debt, and the people who directly benefit from its creation. what i mean is politicians and the rich. i am sure nh will correct me if im wrong, but i think this is what is known as a moral hazard.
politicians will always overspend to get elected if they are allowed to and they abuse this right consistantly.
As mentioned above, how do you cause mass awareness on these issues, in order to free them from their bond(no pun intended)?
NH - You expecting gold and silver to double?
Depends on which currency.
$ terms - Gold 5000/oz and Silver 100/oz without breaking a sweat.
£ terms - Gold 1500/oz and Silver 50/oz
I am tempted to buy leveraged silver ETF again. Should have held mine from last year!!
Will you buy on margin or a guarantee stop?
I expect Silver to trace back sharply to $35/oz towards the summer (potential US interest rate hike)
I thought about that and hence I sold early in the year around $30 and thats what keeps me from buying it.
With the leveraged ETF, your not trading on margin like you would in CFDs. Instead the fund is more like a tracker, but its leveraged so that every 1% movement in silver price (either direction) is equivalent to 2-3% with the leveraged fund. Just like shares, you can hold it for as long as you like without worrying about covering your margins if it goes against you. I do not normally trade with stops, although you can put in one if you so wish.
I went it to it late last year and then sold it after I got a profit of 20% or so.
OK cool.
Do you ever average down?
I would advise Silver bullion but with Premium and VAT you're looking at 30% just to break even.
UPDATE 1-ETF Securities AIG-linked ETCs suspended on LSE
09.18.08
LONDON, Sept 18 (Reuters) - UK-based ETF Securities said more than 100 of its AIG-linked exchange traded commodity funds listed on the London Stock Exchange were suspended on Wednesday, September 17.
'It is our understanding that the London Stock Exchange has suspended electronic execution ... But off-book trading will continue,' the company said in a note on its website on Wednesday.
A spokesman for the LSE confirmed the suspension.
The listed ETCs were suspended because of problems with liquidity because many market makers have cut exposure to troubled insurer American International Group Inc (nyse: AIG - news - people ), ETF Securities told Reuters.
The company's exchange traded commodities (ETCs) listed on other exchanges -- Deutsche Borse (other-otc: DBOEF.PK - news - people ), Borsa Italiana and Euronext -- will continue trading, it added.
Earlier this week ETF Securities said some banks and brokerages ceased making markets in commodity securities (ETCs) backed by matching contracts from AIG.
'AIG has continued to honour all its obligations under our agreements with them ... in the usual manner and paying all redemptions due on time,' the company said.
ETFs are a quick and more profitable route.
To buy £10k worth of silver - You pay 10K + 2K VAT + commission (~3-4%)
To buy £10K worth of leveraged silver ETF = £10k + £21
By the time you are even on buying physical silver, you get around 90% return with the leveraged ETF. You can see why ETF are more attractive.
Sorry dude, I don't understand the 90% return element?
1 Kilo of Bullion Silver will cost me £1000 + 20% VAT (Silver @ $42.50/oz).
Assuming Silver moves to $50.00/oz - could you explain how this would translate to Silver ETFs please?
Silver price up today around 2%... LSIL up 6.7%
Silver and Gold hitting new all time highs, setting all time records.
GBP/USD dropping too
Spread widening!
Superb week for Gold and Silver!![]()
Silver and Gold hitting new all time highs, setting all time records.
GBP/USD dropping too
Spread widening!
Superb week for Gold and Silver!![]()
Track the LSIL ticker and the silver price (which I am sure you do religiously). Maybe you can come up with a strategy we can all use ......
As I said before, I have only traded ETF once so by no means I know everything about them.
thats the one i track too, some substantial returns from that.
Can you sort of put us in the right direction in getting started? Where do you begin in learning about these markets?