Paper Gold Expiry Blues

By: Captain Hook | Mon, Jul 12, 2010
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The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, June 22nd 2010.

With all that's going on in the world these days, ranging from the continued politicization of the oil spill (catastrophe) in the Gulf of Mexico to the possibility of war in the Persian Gulf, it should be no wonder gold is rising and hitting new highs. And that's exactly what gold was doing up until yesterday, hitting new highs, and is set to continue in this regard moving forward after a correction. The big question is just how significant is this correction to be the first wave of what is likely Primary Degree Wave C (minimally) needing to be corrected at some point. We will do our best to answer this question for you below, an explanation rooted in paper gold technicals and the plight of the dollar. As you can see in the attached the dollar turned higher yesterday with swooning stocks, which is a deflation signal in that such a move signifies deleveraging. And please, make no mistake about it, another round of severe deleveraging is coming this fall, however the dollar is likely not finished a corrective a - b - c sequence lower first, a sequence that should take us into July before is all over. This means that at a minimum gold should put in a double top before the larger degree correction discussed above unfolds. (See Figure 1 below.)

Turning to paper gold dynamics for a minute now, as you can see in the attached here, Comex futures expiry should not be a factor this time around with virtually no open interest in the July series, however this will not be the case next month. The options expiry this coming Thursday should contain prices under $1250 minimally however, and possibly drag gold prices back down towards the large round number at $1200 under the right conditions as well considering both have an open interest of some 3,000 to 4,000 contracts at these strikes. In fact the price action yesterday is suggestive $1200 will not hold either, however it's no matter, as prices should rebound post Comex options expiry this Thursday, and after the Fed Meeting today and tomorrow. (i.e. the Fedsters like to take gold down prior to their FOMC meetings to give the impression they are still in control.) Now this might not be the case next month with the August series having some 8,000 calls at each one of these respective strikes (which we will be watching into next month for even more participation), however this is a month away, and if the dollar is to sell off one more time into July, gold should do well into the first part of the month. (One can checkout Comex options open interest figures at the link attached here.)

Continuing on our paper gold market theme, for those who don't know, the vast majority of loose headed gamblers and hedgers within the trading community use Comex gold options to bet / hedge on future outcomes, which in the case of both gold and silver is naturally for higher prices by the majority. So, put / call ratios for Comex gold and silver contracts are always very low. And of course the bankers know all this. So with an implicit guarantee from the Fed (the international banking cartel), the banking syndicate, led by JP Morgan, shorts gold and silver in the futures market because they know when it comes to options expiry time they will be able to knock prices back down as they chase the loose-headed speculators mentioned above out of their expensive contracts, expensive at least when they bought them. Selling these expensive contracts to bullish speculators is how the banking cartel (don't forget about Goldman Sachs, et al) partially finances throwing copious volumes of futures contracts at the bulls at options expiry, where the idea is to get gold and silver to close below heavy open interest strike prices, with the larger round numbers usually attracting the most attention. It was the CFTC hearing where Andrew Maguire broke the story of similar market rigging activities in London that has finally brought deserved attention to cartel fraud in this regard.

Of course what's even more absurd it's truly amazing that the same people get their heads caved in at options expiry every month (which is the definition of an idiot in repeating a negative behavior), but it's true. This is also why gold is not much closer to its real inflation adjusted price, so I wish these guys would cut it out. They maybe too dumb to buy the actual metals, but at least stop screwing it up for everybody else please. If it wasn't for you guys, then we wouldn't need to worry whether the gold chart below would see more bullish signatures traced out in stead of these repeated raping incidents by a self-serving banking cartel that think they are untouchable. Just look at the way they have the politicians handling the Gulf disaster. Instead of bringing in competent help to close this thing in to protect the ecology / economy, to this day BP is being allowed to attempt to harness Deep Horizon no matter what the cost for the benefit of bankers and bureaucrats spread from Washington to London. (See Figure 1)

Figure 1
$Gold - Continous Contract
Gold Continuous Contract

To reiterate, Comex options expiry is approaching this Thursday, which has had a history of materially affecting price, almost always in a negative manner. This, combined with typical Fed Meeting related selling yesterday accounts for the key reversal day(s) witnessed in gold (and silver), where more selling should be anticipated, especially coming off a record paper futures contract threshold. And of course there are all the other reasons mentioned above, and more (think deflation scare) that could see prices enter a more profound correction at anytime, so short-term considerations such as those discussed above should be taken with a grain of salt. (i.e. if the dollar puts in a 'flat' correction), yesterday could have been the highs for 1 of C. In this regard it should be noted speculators are being chased out of their euro short positions at a record clip, which could impair rally efforts moving forward considerably.

Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. As you will find, our recently reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover.

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Good investing all.



Captain Hook

Author: Captain Hook

Captain Hook

Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests.

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