This morning I want to talk to you about why the US elections
coming up could be a great time to use Binary Options.
Elections are very often big "Event Triggers" that cause markets to
move. So, in-effect we know already that markets will move
the week of the Presidential election, and in the weeks leading up
to it. But which ones, and why?
That's the learning objective here -- to provide some deeper level
research that will illustrate that in fact Gold is a key market to
play under the current conditions. The second objective is to
provide you with actionable knowledge.
Once you know why Gold will be in play, putting on Gold Binary
plays will be the really easy part.Last
I told you that, from a sentiment analysis point of view,
the direction of Gold prices might be significantly impacted by the
US elections. The key reasoning behind this was that Gold has
acted as a safe-haven basket in response to increasing US
debt. I have recreated a chart showing this
relationship. Take a quick look at the chart below, which
overlays US Debt versus Gold prices.
Gold prices and US Debt limits had a high degree of correlation
between the years of 1996 and 2011. In fact, over this time
period, we see a correlation coefficient of ~.97. In layman's
terms, as the US Debt limits increased, the price of gold increased
proportionally, and visa versa. Relatively, over this 15 year
horizon we saw a 176.25% increase in the debt limits and a 263.18%
increase in the price of gold.
In the following chart, we can see the positive slope of the
relationship between Gold Prices and US Debt limits. Notice
the slope of the line! It becomes important to monitor in the
future. If the slope changes, the relationship between US
Debt limits and Gold prices may decline or increase in
Right now the US ratio of US Debt limits to GDP is about
110%, and the actual spot price of Gold is $1600+. Right on
target! Gold prices and the Ratio of US Debt / GDP
But many of you who follow the public policy debate and concern
over US debts know that the relationship between Gold and US debt
is not the only perspective that counts. So let's ask and
answer the following question: What is the
relationship between Gold Prices and US Debt as a % of
This is an important question, because it is a key policy public
policy variable. If US economic growth occurs without
reducing US Debt Limits, the US Debt as a % of GDP ratio will go
down. Then Gold prices will also have to face a stronger
bearish sentiment condition. When you compare the Gold prices
to Gross Public Debt/GDP, we can see that the relationship is very
steep. Currently, with the Price of Gold at $1600+, it hits
the prediction line of about 110% of GDP.
The equation that generated the chart shows that the price of Gold
would be near $1598 if US Debt/% GDP is at 110%. That's right
on target again! So we can predict that the price of Gold
will hit $2095 if US Debt/% GDP increases to 130%. We can
also predict that the price of Gold will go down to $1350 per ounce
if US Debt/% GDP is reduced to 100%. See the Table below for
different combinations of US Debt/% GDP and Gold prices. This
equation can be a very good tool for longer term Gold
Let's go one more important step in this analysis and compare Gold
prices overlayed with the US Debt and US Debt /GDP ratio.
Without going into the granularity of the statistics, we can see
that the when we try to predict Gold prices with expected US Debt
limits, the fit is much closer and is a better way to predict
future Gold prices:
You might be thinking right now: What does this have to do with
the US elections and Binary options?
First, the implications from a sentiment point of view and the US
elections should be clear. If there is a perception that US
debt will come down, then Gold prices should follow and fall.
The chemistry of this relationship should be clear. In fact,
its quantifiable. The chart shows that if US Debt went down
to about $12.5 Trillion, Gold prices would be about $1,000.
This means, as I said last week, a Romney election (especially with
the Senate going Republican as well), could be the beginning of a
major bear market in Gold. Or an Obama re-election (with the
Senate staying in Democrat control) could be the event trigger to
get Gold over $2,000.
From a Binary Options point of view, Breakout Trade strategies,
which I teach in my course, will be very important to review
in the week before and week after elections.
Also, we must include the US dollar via the USDCHF in the binary
plays that are related to the US elections.
Any way you look at it, and regardless of our own political
leanings, the upcoming election is a major Event Trigger for
traders of Binary Options. That means we're going to be faced
with even more opportunities for quick trades as we get closer to