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"From the prospector comes the salt of the earth." -- WJ

What Good is Making Money in Gold?

by James Sinclair, Jan 13/03

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The market for gold is quoted in Dollars. You end up with Depreciated Dollars Or Depreciated Dollar vs. Euros.

What good is making money in gold? Many international members of the gold community are asking this question. For them, and for the US gold community, this question is quite important. Firstly, the appreciation of gold has already, and will continue, to outpace the depreciation of the dollar. However, that is no reason to take a loss on the currency even if your currency of domicile is the dollar or on the conversion from the dollar back into the stronger currency of the international gold investor. There is no sound argument that would give us a strong dollar and strong gold at the present time. The Euro looks technically bound for the $1.20 range (presently 105) as the dollar looks at least into low .80 in terms of the USDX (presently 101.98). It could go as low as .72 technically. There is a strong possibility, bordering on a probability, that the US dollar is the real target of the Al Queda war strategy. Could it be that Al Queda knows more about markets than the present administration in the US?

There is a technique that I am using which may well be the solution to the win on gold gain vs. the dollar loss scenario that is inherent in gold. It is inherent in gold because gold is traded primarily in the US dollar. This is also a problem in Rand terms for internal South African buyers of South African gold shares. The solution is simple. For every dollar invested in gold, one dollar should be invested in the Euro. The means to do this without having to tie up huge capital is equally simple. Go long the amount of futures Euros equal to your investment in gold or gold related items. Of course there is risk. The risk in this technique is both gold and the Euro going south simultaneously. This is why stop loss orders are great tools. Going long the Euro is one way of protecting your dollar currency tied up for other purposes. Personally, I like the Euro on its own merits, and am long, planning to increase my position when TA indicated. You will get weekly technical reviews from this point forward on the Euro.

The Simple Steps to Buy the Euro:

1/ Open a commodity account if you do not already have one.

2/ Study the material provided below.

3/ Select that Euro contract that best suits you needs in terms of the size of your commitment to gold.

4/ Do not over-commit. Look at this as a hedge against the dollar and not as a speculation.

5/ Select the degree of risk that you would accept and stick to it as a stop loss order entered open.

6/ Remember not to judge the size of the commitment by the few dollars required to make it. This is good faith money to show that you could settle your commitment called margin money. It is the size of the contract itself that determines the size of what you are doing.

An open order is an order placed with your broker that will remain in effect until you cancel it.

A stop loss order is an order that can do one of two things according to your selection:

1/ When the price you select to stop your loss occurs, your order to sell becomes a market order.

2/ When the price you have selected to stop your loss occurs, your order can activate with a limit. This is called a stop limit order.

I prefer a stop loss order entered as an open order. It gives me peace of mind.

CBOT - Mini-sized Eurodollar Futures Futures

Trading Unit

Eurodollar Time Deposit having a principal value of $500,000 with a three-month maturity.

Tick Size = of one basis point (or $6.25/contract)

Price Quote

Prices are quoted in terms of an index consisting of the difference between the number 100.00 and the Three-Month Eurodollar yield on an annual basis for a 360-day year.

Contract Months

Mar, Jun, Sep, Dec

Last Trading Day

Second London bank business day immediately preceding the third Wednesday of the delivery month.

Settlement

The contract is cash settled with the final settlement price based on the British Bankers' Association Interest Settlement Rate.

Trading Hours

Electronic Trading -- 8:00 p.m. to 4:00 p.m., Chicago time, Sunday -- Friday. Trading in expiring contracts closes at 5:00 a.m.* Chicago time on the last trading day.

* This is 5:00 a.m. (Chicago time) except when Daylight Savings Time is in effect in either, but not both, London or Chicago.

Ticker Symbols

Electronic Trading- YE

Daily Price Limit

None.

Chicago Mercantile Exchange -- Euro FX

Euro FX futures and options on futures contracts traded at CME are designed to reflect changes in the U.S. dollar value of the Euro. Futures contracts are quoted in U.S dollars per Euro, and call for physical delivery at expiration. Exercised options contracts are settled by the delivery of futures contracts.

Financial institutions, investment managers, corporations and private investors can use Euro FX futures and options to manage the risks associated with currency rate fluctuation and to take advantage of profit opportunities stemming from changes in currency rates.

Futures

Ticker Symbol

GLOBEX: 6E Open Outcry: EC AON Code: UG

Sample Quote

.8801 USD/EC

Contract Size

125,000 Euro

Minimum Price Fluctuation (Tick)

Trading can occur in $.0001 per Euro increments ($12.50/contract). Also, trades can occur in $.00005 per Euro increments ($6.25/contract) for Euro FX futures intra-currency spreads executed on the trading floor and on GLOBEX, and for All-or-None (AON) transactions.

Maximum Price Fluctuation

No price limits. See "Banding" information under "Maximum Price Fluctuation." (http://www.cme.com/jumppage.cfm?pageid=0005B6F3-B222-1CA0-B13780EDBEFB000 0)

Contract Month Listings

Six months in the March Quarterly Cycle (March, June, September, December).

Trading Hours (Central Time)

Monday through Friday GLOBEX: 4:30 p.m.-4:00 p.m. the following day; on Sunday trading begins at 5:30 p.m. Open Outcry: 7:20 a.m.-2:00 p.m.

Last Trading Day

Trading ceases at 9:16 a.m. Central Time on the second business day immediately preceding the third Wednesday of the contract month (usually Monday).

Delivery

Physical delivery takes place on the third Wednesday of the contract month, in the country of issuance at a bank designated by the Clearing House.

Position Accountability

Positions of more than 10,000 contracts net long or short, in all contract months combined must provide, in a timely fashion, upon request by the Exchange, information regarding the nature of the position.

Trading Venue

Open Outcry, GLOBEX, EFP (http://www.cme.com/allaire/spectra/system/securemediastore/efpfaq.pdf) and AON (http://www.cme.com/allaire/spectra/system/securemediastore/AONQA3.pdf)

options on futures

Ticker Symbol

Quarterly and serial options: EC Weekly options: 1X-5X AON Code: UG

Pricing Conventions & Calculating Cash Premiums

A Euro FX option price quoted as 20.30 is equivalent to 20.30 x 0.001 = 0.02030 when the price is quoted in full. Similarly, an Euro FX option price quoted as 0.02030 is already quoted in full. The cash price of the option is 0.02030 x 125,000 (contract size) = $2,537.50.

Underlying Instrument

Quarterly, Serial and Weekly Options: the nearest futures contract in the March quarterly cycle (March, June, September, December) whose termination of trading follows the option's last day of trading by more than two Exchange business days.

Minimum Price Fluctuation (Tick)

$.0001 per Euro = $12.50/contract; also, trades may occur at $.00005 ($6.25), $.00015 ($18.75), $.00025 ($31.25), $.00035 ($43.75), and $.00045 ($56.25), which are less than five ticks of premium.

Exercise (Strike) Prices

$.005 per Euro, e.g., $1.055, $1.060, $1.065, and so on.

Contract Listings

Quarterly Options: the first four months in the March quarterly cycle. Serial Options: two serial options are listed at any time. Their expirations precede that of the underlying futures contract by one and two months. For example, following the expiration of the March futures and options cycle, April and May serial options on the front June futures contract are still available for trading. Consequently, the serial option expirations fall in January, February, April, May, July, August, October and November. Weekly Options: four weekly options are listed at any time.

Trading Hours (Central Time)

Monday through Friday GLOBEX: 2:30 p.m.-7:05 a.m. the following day; on Sunday trading begins at 5:30 p.m. Open Outcry: 7:20 a.m.-2:00 p.m.

Expiration/ Last Trading Day

Quarterly and Serial Options: the second Friday immediately preceding the third Wednesday of the contract month. Weekly Options: the four nearest Fridays that are not also terminations for quarterly and serial options.

Exercise/ Assignment

All in-the-money options are automatically exercised at expiration in the absence of contrary instructions. All American-style CME foreign exchange currency options may be exercised until 7:00 p.m. Central Time on any business day the option is traded.

Position Accountability

A person owning/controlling a combination of options and underlying futures contracts that exceeds 10,000 futures-equivalent contracts net on the same side of the market in all contract months combined shall provide, in a timely fashion, upon request by the Exchange, information regarding the nature of the position.

Trading Venue

Open Outcry, GLOBEX and AON

e-mini Euro fx

futures

Ticker Symbol

GLOBEX: E7

Contract Size

62,500 Euro

Minimum Price Fluctuation (Tick)

Trading can occur in $.0001 per Euro increments ($6.25/contract). Also, trades can occur in $.00005 per Euro increments ($3.125/contract) for E-mini Euro FX futures intra-currency spreads.

Maximum Price Fluctuation

No price limits. See "Banding" information under (http://www.cme.com/jumppage.cfm?pageid=0005B6F3-B222-1CA0-B13780EDBEFB000 0) Maximum Price Fluctuation."

Position Accountability

Postitions of more than 10,000 standard size Euro FX contracts net long or short in all contract months combined must provide, in a timely fashion, upon request by the Exchange, information regarding the nature of the position. One standard size Euro FX futures contract equals two E-mini Euro FX futures contracts.

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