Stocks & Commodities V. 28:11 (44-48): Using The Euro To Trade Gold by Anthony Trongone

Stocks & Commodities V. 28:11 (44-48): Using The Euro To Trade Gold by Anthony Trongone
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Using The Euro To Trade Gold by Anthony Trongone

Reaching a critical price in one commodity often triggers an emotional response by investors in other commodities. Here’s a look at the relationship between a leading variable and a lagging one.

Reaching a critical price in one commodity often triggers an emotional response by investors in other commodities. Market participants quickly react to these price disruptions, and their response eventually trickles down to less-active momentum players. Once enough market participants begin jumping aboard, this pattern — with its basis in market sentiment — establishes a foothold.

This article focuses on the intraday activity of two commodity contracts: the leading variable and lagging variable, the first of which drives the price of the second. In order to demonstrate how these two variables function, I will use the euro, the official currency of the European Union (EU), as the contributory (leading) variable, and the gold futures contract as the response (lagging) variable.

The euro (EC) trades on the Globex, using the US dollar as its currency. It has a multiplier of 125,000 with increments of 0.0001 ($12.50), whereas the gold futures contract (GC) trades on the Nymex and has a contract size of $100 per troy ounce with a multiplier of 10. I ran this analysis by downloading the numbers for the continuous contracts [6E #F/GC #F] directly from Interactive Data.




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