February Gold is down $1.60 per ounce at $1094.40 this morning as I write.  The included chart shows that February gold closed below the $1100 level yesterday, and looks as if prices may still have $20 to $50 lower to go potentially before a low is put in and the next rally leg can begin.  That of course remains to be seen, but the directional movement indicators still show a near term bearish market and an ADX line that is still edging lower.  I won’t get excited about adding new bullish gold trades until prices begin some sort of basing action first.  In the mean time, I will continue to try to cover some of our short April call options.  Yesterday, we did fill on one of those April call options.  We bought back one of our two short April Gold $1400 call options at $4.00 that we originally sold for $9.90 per ounce resulting in a gross gain of $590.  As we cover those short April Call options, our upside profitability will be enhanced on the next major gold rally, assuming it comes before expiration in late March.  There are two important support levels to keep an eye on going forward.  Those support levels are the $1045 area made back in October where the government of India purchased 200 tonnes of gold from the IMF.  The other is the $1008.00 area of the bullish weekly inverted head and shoulders pattern that I have mentioned many times before.  February gold prices should hold down in those areas on a pull back like the one happening now.  Remember that secular bull markets can return to its bullish ways at a moment’s notice, so price may not reach those downside targets.

 I recommend attempting to buy only one April Gold ($1300 strike) call option to liquidate at $7.50 GTC.

I recommend attempting to buy both April Gold ($1500 strike ) call options to liquidate at $1.00 each GTC.

 We are currently long three April gold calls and short five 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 three of the five 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 35 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 1 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 93 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.