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Alessio Rastani: The game plan for buying gold

by LLB Editor
17th Mar 13 7:20 pm

Remember the trader who told the BBC that “Goldman Sachs rules the world”? This is his column

Our columnist Alessio Rastani is the self-proclaimed trader who shocked the world by declaring live on BBC News that he goes to bed “every night dreaming of the next recession” and that “Goldman Sachs, not the governments, rule the world”. He’s a controversial figure, not least because he’s a self-taught non-institutional trader with no FSA license. But he certainly isn’t shy about sharing his views. Do you agree with his words? (His words are his own, and in no way endorsed by LondonlovesBusiness.com)

The recent decline in gold prices has given investors a great opportunity to load up on their favourite precious metal.

Many folks have been asking me about gold: “when is a good time to buy?”

Well, if you’re looking to buy gold as a means for protection or “insurance” against a financial melt-down, then there is nothing wrong with just going ahead and buying it now.

If you’re looking for a safe and reliable place to buy physical gold and silver bars or coins I would recommend BullionVault. I use them regularly for making my own physical gold and silver purchases. The good thing about being a trader is that we can still trade gold even though we may own it for the long term.

Have a look at this recent chart of Gold:

Gold in March 2013

In this situation I am looking to short gold (i.e. making money from falling prices) if gold rallies back to the downward “trendline” (the red line shown on the chart) at the 1620 to 1640 range. 

I would also then wait to see if it makes a reversal signal. With gold, I am careful not to enter merely at a pullback due to its “fluid personality” – it is too dangerous. I always prefer to wait for a reversal.

A good way to trade gold is by means of futures, ETFs, spread betting or CFDs (contracts for difference). 

My preferred method is trading gold CFDs through ETX Capital which is a brokerage firm that deals with spread betting and CFDs.

The reason I prefer CFDs instead of futures is because it carries less risk. Both gold and silver are highly volatile instruments so one needs to be careful about handling them. 

With one gold CFD contract, a one point move in gold can mean $10 USD (or £0.67 GBP) in your P&L (profit & loss).  However, the same one point move would mean $100 in your P&L if you traded a gold futures contract.

So in my view, futures are more risky.

Right now the average daily range (i.e. the difference between its daily tops and bottoms) on gold is approximately $20.  If gold was to move against you by $20, that would mean a mere $200 loss if you owned the CFD.  But it would mean a $2,000 loss if you owned a gold futures contract!

With CFDs I have more control over risk. 

If I want to increase my reward, I can just buy more contracts (e.g 10 gold CFDs would mean $100 profit for a one point move in gold).

Now, what about potential points for “loading up” on gold?

Take a look at this monthly chart of gold:

LTSigma chart

In 2011 Gold flashed a sell signal as it entered the “Red Sigma” zone of the LT Sigma indicator* and the bar turned red.  This indicated a good time to take profits and being cautious about entering the gold market. Now in 2013 we are seeing gold in the safer Blue Sigma, indicating a point of “value”. If gold can test its previous 2011-2012 support in the 1520 range (shown by the white line), this would pose a good buy opportunity.  If it closes below this level this could indicate a confirmed bear market in gold.  But I am doubtful that will happen.

*LT Sigma is a copyright of LeadingTrader.com

For further information about trading the markets visit my website www.LeadingTrader.com.

Alessio Rastani gained fame and caused controversy last year by stating live on BBC news that he “dreams of another recession” and that “Goldman Sachs, not governments, rule the world”. The YouTube clip has since been watched over two million times, and Alessio has subsequently been interviewed by figures such as Sir David Frost. His website is LeadingTrader.com.

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