February Gold is down $6.50 per ounce at $1100.90 this morning as I write.  The included chart shows that yesterday, February Gold fell sharply and briefly broke the $1100 area.  I would not be surprised to see gold continue to fall back towards the $1050 area, which is also near the level where India bought their 200 tonnes from the IMF back in late October.  The longer term secular trend is still up, so we need to be focused on attempting to liquidate some of our short April call options soon and possibly add new positions once the correction ends.  The directional movement indicators are bearish and the ADX line continues to fall.  With this all in mind, I recommend the following actions:

I recommend attempting to buy only one April Gold ($1300 strike) call option to liquidate at $7.50 GTC.  The current price is near $12.00, but if gold drops like it did yesterday, our price would be close.

I recommend attempting to buy only one April Gold ($1400 strike) call option to liquidate at $4.00 GTC.  The current price is near $6.00, but if gold drop like it did yesterday, our price would be close.

I recommend attempting to buy both April Gold ($1500 strike ) call options to liquidate at $1.00 each GTC.  The current price is a little over $3.00, but if gold drops down another $30 or so, we should be close.

We are currently long three April gold calls and short six other strike priced April gold calls.  On the anticipation that a large bull move in gold is yet to come in the first quarter of 2010, my near term goal is to cover four of the six short April Gold call options for profits to make our remaining positions more potent on the upside.  Once gold begins to form a bottoming pattern, I will want to add to long gold positions as well.  Stay tuned.

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

Long 2 February Gold ($970 strike) put options at $10.60 each.                 

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

(February Gold options expire in 39 days).

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Long 1 April Gold ($1210 strike) call option at $33.00.

Short 2 April Gold ($1300 strike) call option at $17.50 each.

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.

(April Gold options expire in 97 days).

 David Hall

 The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

 This newsletter is not intended for dissemination to the public without prior approval from David Hall.