December Gold is down $3.60 per ounce at $1043.50 this morning as I write. The enclosed chart shows that the long term trend for gold is up. The directional movement indicators are still bullish but the ADX line is declining. After falling a little over 4% from the highs, the gold market had a very sharp rally day yesterday. Is this the beginning of the next bull market leg up? I believe that the dollar will be the key to that answer. I am happy that we had the rally since we are bullishly oriented in our positions, but I am not going to get too excited at this point unless there is some strong follow through to yesterday’s rally. So far today, that is not the case. I would expect to see more back and forth re-testing of this week’s lows in the days to come before gold is ready to take off again. You never know with major trends; they can reinvigorate themselves at any time. That is why I don’t like to play the corrections, but rather look to add to positions in the direction of the major trend.

Followers of this letter should have the following positions:

Long 1 December Gold futures contract at $1018.00.

Short 1 December Gold ($970 strike) call option at $58.00 per ounce. (December gold options expire in 24 days on November 23rd).

Long 1 December Gold ($1100 strike) call option at $16.30 per ounce.

Short 2 December Gold ($1180 strike) call options at $8.40 per ounce each.

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Long 2 February Gold ($960 strike) put options at $10.40 each.

Short 4 February Gold ($935 strike) put options at $6.20 each.

Long 2 February Gold ($970 strike) put options at $10.60 each. (February Gold options expire in 88 days).

Short 4 February Gold ($950 strike) put options at $6.80 each.

Long 1 February Gold ($1100 strike) call option at $32.60.

Short 1 February Gold ($1130 strike) call option at $24.60.

Long 1 February Gold ($1140 strike) call option at $23.90.

Short 1 February Gold ($1180 strike) call option at $16.90.

Long 1 February gold ($1270 strike) call option at an average cost basis of $5.00 per ounce.

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Long 1 April Gold ($1275 strike) call option at $17.80 per ounce.

Short 2 April Gold ($1400 strike) call options at $9.90 per ounce each

Long 1 April Gold ($1375 strike) call option at $11.80.

Short 2 April Gold ($1500 strike) call option at $6.90 each.

Oct. 30, 2009
David Hall