Gold trading may be more profitable during deflationary periods

When an asset such as gold has reached historical highs it becomes a good time to trade, gold trading should be less risky in the long run and more profitable as we are in a period of deflation.

Gold prices have normally been strongly correlated to the inflation rate It has been thought that as inflation climbs and the dollar became weaker that gold would increase in value. However, gold prices have been also known to do well during times of deflation. In fact, the best gold bull cycles have been during deflationary periods.

As the dollar becomes weaker demand for gold goes up, the gold price, denominated in dollars, will rise. This is due to the flight to quality. Inflation eats away at the stock and bond markets because the value of the dollar becomes diluted, that's why the precious metals, theoretically, should do well during these periods. Gold is the flagship precious metal out of all the precious metals. Silver has shown similar cycles, however, gold prices have performed much better with more volatility than silver over recent history.

With that said, it should be known that inflation is not a requirement for increasing gold prices. In general, times of economic hardship and geopolitical instability also favor high performance from the precious metal. In fact, historically, deflationary periods have been  the most favorable for precious metals.

Are consumers leading a recovery for the entire economy? [UPDATE]

UPDATE: The latest reading on consumer sentiment was lower than expected at just under 67 which is a one year low. In order for consumers to be confident about the economy there will need to be new job growth and more money in people's pockets apparently.

Recent data on the economy reported that consumers had contributed more to second quarter economic growth than other GDP factors, notwithstanding the fact that the report was reported sharply lower than previously estimated. If consumer confidence should persist or even tick higher we can find ourselves smooth sailing towards a safe recovery. Otherwise, there is a chance for a double dip which would be unfavorable given the amount of pressure we are already under.

Consumer confidence

August reports a consumer sentiment of just below 67, lower than expected and lower than July's reading. July’s consumer sentiment level came out to be just under 69, which is considerably higher than the recession reading of near 55. Yet, we would need to see this index expand in the near future to be confident that that the consumer is on board with spending, ultimately leading us into economic recovery.

Definition of statistic

Since consumer spending is considered to make up two-thirds of the economy the consumer confidence indicator is highly relevant. One measure of consumer confidence is the consumer sentiment report which is polled monthly by the Since consumer spending is considered to make up two-thirds of the economy the consumer confidence indicator is highly relevant. One measure of consumer confidence is the consumer sentiment report which is polled monthly by the University of Michigan's Consumer Survey Center. There is a direct correlation to strength of consumer spending which is what makes this statistic so significant.

Options Trading Strategy: Credit Spread Options

The credit spread option is a limited gain, limited risk options trading strategy that seeks to profit by selling options. For call options one would sell the low strike price option and buy the higher strike priced option. Hence, the spread will be net credit.

In other words, at the outset of the position the account will collect premium with the intention of profiting by a sideways market or a bull market, having neither preference. This is a premium collection strategy with limited risk as opposed to selling naked options with unlimited risk.

This options strategy is ideal for people who are invested in markets that have reached a cyclical or seasonal low. This allows the net credit spread to receive richer premiums with balanced risk as opposed to risking more in times of market peaks.

Once the options reach time of delivery (expiration), the premium that was collected at the outset, will be retained but no more profit can be achieved no matter how high the market goes up.

Ideally, one should use the strategy with less than six weeks left until expiration, that way the investor can take advantage of the rapid time value decay of the options.

Options with Managed Futures

Managed futures accounts are a great way for any investor to diversify a portfolio. Most experts agree that up to twenty percent of an investment portfolio should be allocated to risk capital. Options portfolios would be considered risk capital that is suitable for this allocation.
Now, with options investment managers or professional traders can use a great number of different strategies. The major strategies are as follows:

• Options selling
• Dispersion portfolio
• Buy a basket of options

Options selling is one of the more risky types of investing. The manager will write (sell) options to capture a short term profit from the time value decay of options. Since options lose their value very quickly near time of expiration, so long as the market does not make a major up move the options selling is ideal.

Dispersion portfolio is best in times when the options in a market index are implying a lower volatility then the market is actually experiencing. To perform this strategy the manger will buy a basket of options that replicate the market index while selling the market index.

Managers can use different strategies or a mix of different strategies according to the disclosure document that is filed with national futures association.