Your Currency Trade on Rising Gold Prices
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If gold keeps rising the way it did on Friday, this strategist has a trade for you.
Gold has had a fairly rough ride in the last several months, but this week it was shining.
Matthew Bishop, a co-author of In Gold We Trust?, thinks more appreciation lies ahead.
"If you look at what's happening in Europe, they keep talking about austerity," he says, but it's not taking hold - and it's not turning around the economies that need it. "The long way out of this is we're going to get some inflation and we're going to see gold go from being a specialist investment to being something which the public as a whole starts to buy, and that's when the price will really shoot up."
That would be a few years out - but in the meantime, Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, is ready with a currency trade.
First, though, currency plays on gold aren't straightforward. "If gold goes up on risk aversion you tend to want those safe haven currencies with low yields, things like Swiss franc, yen, sometimes even the dollar," she says. "If gold is going up because jewelry demand, commodity demand broadly is rising, you want to be in a commodity currency like the Australian dollar or Canadian dollar."
This week, Patterson especially likes the Canadian dollar against the U.S. dollar. It's been on a roll, so she wants to wait for a pullback to parity and play it some more. She would enter the trade at parity, setting a stop at 1.0050 and a target of 0.9800.
You can watch the discussion on this video.
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CURRENCY FUTURES
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