Episode IIIITechniques of Investing

inGold

Friday, the 15th of May 2015

Commodity?

• Commodity is a marketable item (goods or services) produced to satisfy wants / needs

• Commodities can be:

• basic resources

• agricultural products

• Commodities classification

• soft commodities (grown): tea, coffee beans, soybeans , rice and wheat.

• hard commodities (mined): iron ore, crude oil, coal, salt, sugar, aluminium, copper, gold, silver, palladium, and platinum.

Physical Gold

Production Cycle

Production CyclePhase I

• Miners dig silver and gold ore from the ground and sell mix ore and dore metal bars to refiners below spot/current price.

Production CyclePhase II

• Refiners melt and purify the ore/dore bars into fine bullion, which are then sold to mints at a price very close to spot/current price

Production CyclePhase III

• Mints strike bullion bars/rounds/coins and sell them to wholesale/retail dealers at prices just above spot/current price.

• Dealers sell them to public at their price discretion.

Precious MetalsMarkets

Gold Markets

Gold Markets

• Japan - Tokyo gold market (00:00 GMT - 6:30 GMT) then (8:00 GMT - 14:00 GMT)

• China - Shanghai gold market (1:00 GMT - 3:30 GMT) then (5:30 GMT - 7:00 GMT)

• Hong Kong gold market (1:00 GMT - 4:30 GMT) then (6:30 GMT - 9:00 GMT)

• UK - London gold market (8:00 GMT - 17:00 GMT)

• Indonesia - Jakarta gold market (2:30 GMT - 10:30 GMT)

• United Arab Emirates - Dubai gold market (4:30 GMT - 7:30 GMT)

• India - Mumbai gold market (4:30 GMT - 18:00 GMT)

Gold Markets

• Pakistan - Islamabad gold market (5:00 GMT - 13:00 GMT)

• Turkey - Istanbul gold market (7:45 GMT - 15:30 GMT) then (15:45 GMT - 7:40 GMT)

• UK - London gold market (8:00 GMT - 17:00 GMT)

• Brazil - Sao Paulo gold market (13:00 GMT - 20:00 GMT) then (20:45 GMT - 22:00 GMT)

• US-New York gold market (13:20 GMT - 18:30 GMT)

Gold Prices• Driven by supply and demand, and speculation.

• Influenced by:

• central banks announcements and actions,

• reaction to results of economic indicators,

• hedging and stop-loss/take-profit orders,

• industrial demand,

• short selling by speculators,

• gold recycling,

• political instability, and

• national emergency.

Pricing inOther Currencies

USD Indicator EUR Price inEUR

Indicator JPY Price inJPY

Indicator

4/17/15 $1,198.60

$1.0807 €1,109.10

¥118.920

¥142,538

4/20/15 $1,204.40

0.484% $1.0737 €1,121.73

1.139% ¥119.200

¥143,564

0.720%

4/21/15 $1,195.80

(0.714%) $1.0736 €1,113.82

(0.705%) ¥119.670

¥143,101

(0.323%)

4/22/15 $1,202.20

0.535% $1.0727 €1,120.72

0.620% ¥119.920

¥144,168

0.745%

4/23/15 $1,186.90

(1.273%) $1.0826 €1,096.34

(2.175%) ¥119.580

¥141,930

(1.553%)

4/24/15 $1,193.00

0.514% $1.0874 €1,097.11

0.070% ¥118.980

¥141,943

0.010%

Pricing inOther Currencies

USD Indicator EUR Price inEUR

Indicator JPY Price inJPY

Indicator

5/8/15 $1,188.90

$1.1204 €1,061.14

¥119.810

¥142,442

5/11/15 $1,183.00

(0.496%) $1.1155 €1,060.51

(0.059%) ¥120.080

¥142,055

(0.272%)

5/12/15 $1,192.40

0.795% $1.1214 €1,063.31

0.264% ¥119.860

¥142,921

0.610%

5/13/15 $1,218.20

2.164% $1.1358 €1,072.55

0.868% ¥119.160

¥145,161

1.567%

5/14/15 $1,225.20

0.575% $1.1402 €1,074.55

0.187% ¥119.170

¥146,007

0.583%

5/15/15 $1,214.70

(0.857%) $1.1362 €1,069.09

(0.508%) ¥119.860

¥145,594

(0.283%)

Investor?

• to deploy money, by purchase or expenditure, in something that can offer economical benefit as income or appreciation in value.

• to use money in accumulating assets.

• to devote time and talent in order to achieve economical goal.

Behaviour ofAccount Holders

• Margin Account holders:

• They are Trend Followers

• They increase buying as market goes up and increase selling with the down trend

• Cash Account holders:

• They go opposite of market trend

• They increase selling as market goes up and increase buying as it falls

Infinity and Zero

• Infinity does not exist

• Zero does not exist

Spot Price• Spot Price / Current Price is the benchmark price at which

physical gold/silver can be sold or bought at specified time and place.

• This Benchmark Price is calculated according to the most recent average bid/ask prices by traders

• Factors that affect the Benchmark Price:

• bid/ask prices

• fixing prices

• trades volume

• political instability

• Central Banks actions and announcements

• supply and demand of physical stock

Spread

• The difference between the bid and ask price

• bid price is the current highest price at which you could sell

• ask price is the current lowest price at which you could buy

• Spread is affected by:

• supply

• demand

• trading volume

Pricing Equation

• Each product is priced according to below equation:

• Spot/Current Price x Fineness of the Product x Gross Weight of the Product

• On physical redemption, the buyer will pay the premium

Overnight SWAPInterest

• In the world of CFD (Contract For Difference) the overnight swap interest rate is the interest rate (charge) at which a depository institution lends quantity of a particular commodity to another depository institution.

Unrealised / RealisedLoss/Profit

• Unrealised Loss is the loss that results from holding onto a position after the price has dropped from the open price.

• Unrealised Profit/Gain is the gain that results from a profitable position that has yet to be cashed in.

• Realised Loss is when a losing position is closed for loss.

• Realised Profit/Gain is when a losing position is closed for profit.

Investing

Techniques of

Pivot Point• Three prices of previous day: Highest Price, Lowest Price and

Closing Price

• Pivot Point:

• Technical Analysis Indicator used to determine the overall trend of the market.

• Simply the average of the high, low and closing prices from the previous trading day.

Pivot Point

• Pivot Point Formulas: Classic, Fibonacci, Camarilla, and Woodie’s

• Fibonacci Formula:

• Pivot Point = (Highest Price + Lowest Price + Closing Price) / 3

• Support 1 = Pivot - 0.382 x (Highest Price - Lowest Price)

• Support II = Pivot - 0.618 x (Highest Price - Lowest Price)

• Support III = Pivot - 1 x (Highest Price - Lowest Price)

Support / ResistanceLevels

• Resistance is an upper limit of price movement in which metal’s price tends to stay.

• The price at which buyers jump in to purchase metals, establishing a floor beneath which it's difficult for the price to fall.

Tips

• Follow a standardised Trade Size.

• Maintain an acceptable profit margin.

• Keep a price gap between two consecutive orders of 0.80% of profit margin.

AcceptableProfit Margin

• Acceptable profit margin for each open trade:

• Gold Ounce: TP (Take Profit) to be 0.40% of the open price.

• Silver Kilo: TP (Take Profit) to be 1.20% of the open price.

Distribution of OrdersPlace orders on or around the daily three support prices

Go Fishing

• Determine the 3 Price Support-Levels for each Product

• Place buy orders around each Price Support-Level

First Year Objectives• Calculate acceptable Profit Margin that covers commission of

open trades.

• Cover Average Unrealised Loss of open trades with Realised Profit.

• Build up capital from Realised Profit that covers the value of all open trades.

RealisedProfit

AverageUnrealised Loss

Average Value ofOpen Trades

Free Stock

RedemptionPhysical Products

• Rule of thumb says to have 8 to 10% of total wealth in precious metals

• Accumulate gradually your free stock in physical form

Real Case

Example

Pivot Open High S1 S2 S3 Low Closing

04/17/15 $1,198.60

$1,207.80

$1,197.00

$1,203.10

04/20/15 $1,202.63

$1,204.40

$1,209.00

$1,198.51

$1,195.96

$1,191.83

$1,190.80

$1,193.70

04/21/15 $1,197.83

$1,195.80

$1,203.70

$1,190.88

$1,186.59

$1,179.63

$1,192.50

$1,203.10

04/22/15 $1,199.77

$1,202.20

$1,204.40

$1,195.49

$1,192.85

$1,188.57

$1,185.00

$1,186.90

04/23/15 $1,192.10

$1,186.90

$1,197.40

$1,184.69

$1,180.11

$1,172.70

$1,183.60

$1,194.30

04/24/15 $1,191.77

$1,193.00

$1,195.40

$1,186.50

$1,183.24

$1,177.97

$1,174.10

$1,175.00

Gold Prices (Fibonacci)

Pivot Open High S1 S2 S3 Low Closing

04/24/15 $1,191.77

$1,193.00

$1,195.40

$1,186.50

$1,183.24

$1,177.97

$1,174.10

$1,175.00

04/27/15 $1,181.50

$1,179.30

$1,206.70

$1,173.36

$1,168.34

$1,160.20

$1,177.60

$1,203.20

04/28/15 $1,195.83

$1,201.60

$1,214.90

$1,184.72

$1,177.85

$1,166.73

$1,198.60

$1,213.90

04/29/15 $1,209.13

$1,211.40

$1,213.50

$1,202.91

$1,199.06

$1,192.83

$1,200.70

$1,210.00

04/30/15 $1,208.07

$1,204.50

$1,207.40

$1,203.18

$1,200.16

$1,195.27

$1,176.00

$1,182.40

05/01/15 $1,188.60

$1,183.70

$1,184.40

$1,176.61

$1,169.19

$1,157.20

$1,168.40

$1,174.50

Gold Prices (Fibonacci)

Pivot Open High S1 S2 S3 Low Closing

05/01/15 $1,188.60

$1,183.70

$1,184.40

$1,176.61

$1,169.19

$1,157.20

$1,168.40

$1,174.50

05/04/15 $1,175.77

$1,176.60

$1,192.10

$1,169.65

$1,165.88

$1,159.77

$1,176.60

$1,186.80

05/05/15 $1,185.17

$1,187.50

$1,199.30

$1,179.25

$1,175.59

$1,169.67

$1,184.90

$1,193.20

05/06/15 $1,192.47

$1,192.50

$1,196.90

$1,186.97

$1,183.57

$1,178.07

$1,187.40

$1,190.30

05/07/15 $1,191.53

$1,191.30

$1,192.00

$1,187.90

$1,185.66

$1,182.03

$1,177.90

$1,182.20

05/08/15 $1,184.03

$1,183.70

$1,193.00

$1,178.65

$1,175.32

$1,169.93

$1,180.50

$1,188.90

Gold Prices (Fibonacci)

Silver Prices (Fibonacci)

Pivot Open High S1 S2 S3 Low Closing

04/17/15

$524.28 $531.67 $522.02 $523.25

04/20/15

$525.65 $524.44 $526.69 $521.96 $519.68 $516.00 $510.13 $512.19

04/21/15

$516.34 $513.67 $520.90 $510.01 $506.10 $499.78 $511.57 $516.01

04/22/15

$516.16 $514.95 $518.01 $512.60 $510.39 $506.83 $504.50 $509.20

04/23/15

$510.57 $507.39 $513.02 $505.41 $502.22 $497.06 $506.11 $510.32

04/24/15

$509.82 $510.61 $512.06 $507.18 $505.55 $502.91 $501.45 $504.18

Silver Prices (Fibonacci)

Pivot Open High S1 S2 S3 Low Closing

04/24/15

$509.82 $510.61 $512.06 $507.18 $505.55 $502.91 $501.45 $504.18

04/27/15

$505.90 $506.11 $530.22 $501.84 $499.34 $495.29 $505.47 $528.58

04/28/15

$521.42 $527.65 $536.98 $511.97 $506.13 $496.67 $524.92 $534.73

04/29/15

$532.21 $534.40 $537.78 $527.60 $524.76 $520.15 $527.81 $537.04

04/30/15

$534.21 $532.96 $537.94 $530.40 $528.05 $524.24 $508.04 $519.39

05/01/15

$521.79 $519.13 $522.83 $510.37 $503.31 $491.89 $511.10 $518.81

Silver Prices (Fibonacci)

Pivot Open High S1 S2 S3 Low Closing

05/01/15

$521.79 $519.13 $522.83 $510.37 $503.31 $491.89 $511.10 $518.81

05/04/15

$517.58 $518.65 $539.07 $513.10 $510.33 $505.85 $518.49 $528.65

05/05/15

$528.74 $527.33 $537.14 $520.88 $516.02 $508.16 $525.56 $533.09

05/06/15

$531.93 $531.83 $535.37 $527.51 $524.77 $520.35 $526.85 $530.74

05/07/15

$530.99 $531.67 $532.32 $527.73 $525.72 $522.47 $519.61 $524.02

05/08/15

$525.32 $524.28 $532.32 $520.46 $517.46 $512.61 $522.83 $529.42

Recommendations

Liquidation Level• Calculate the Equity = Account Balance - Unrealised Loss + Unrealised Profit

• Determine the Quantity of Each Product with Open Trades

• Find out the Net Value of Each Product with Open Trades: Current Price of the Product x Quantity of Each Product with Open Trades

• Make summation of all Net Values to come to Total Net Value of all Open Trades

• Calculate the Share of Each Net Value of Total Net Value: Each Net Value / Total Net Value

• Liquidation Price of Each Product will be: Current Price - (Share of Each Net Value x Equity / Quantity of All Open Trades)

• Investor NOT a Speculator

• Medium to Long Term Investor

• The focus is on Overall Return of a portfolio

• Holding time is from several months to several years

• Physical Market not Financial Market

Stop-Loss Orders

Falling Knife

• Precious Metal experiencing a rapid drop.

• Do not try to catch a price while dropping.

• Those precious metals are safe to pick up after they hit the ground.

• Find the following Price Support Level.

Things to remember!