As I have mentioned several times in recent newsletters, in which I said to not be surprised that we will begin seeing $50 and $100 trading days in gold soon. Well, it is happening today! The included chart shows how gold has fallen near $70 per ounce today after the surprise unemployment number was released. This is precisely why I have been advocating option strategies and NOT futures contracts. I have seen this before, especially in the early 1980’s at the beginning of my career. I will also state that I think that this is just the beginning. Fully expect to see much higher prices in gold after this correction concludes. Then you better get ready for $50+ up days that go along with the $50+ down days. As prices go higher, the volatility will go higher as well. I will get to the point where I will only recommend vertical spreads rather than ratio spreads to keep the risk down. Ratio spreads will only be recommended in this scenario if the difference between the strike prices is very wide. I you have been doing exactly as I have recommended on gold, then today is not a big deal for your positions. As a matter of fact, don’t forget that we now own some February put options basically for free, from the liquidation of the short puts recently. So, if gold continues to crash, we stand to profit from our outright puts. This action is just what the doctor ordered for our ratio call spreads since gold was rallying too fast too soon. This correction should help alleviate that problem, as time goes by at these lower price levels. I will be looking to cover some or our short April Gold call options at a profit on this selloff. That way, when the next big rally begins, we will have outright call options in which to participate rather than having higher strike short calls to get in the way. I fully expect gold to correct some more now, and then, very soon, begin seeing prices rebound once again. I still believe that gold will reach at least $1330 to $1350 buy some time in the first quarter of 2010, and then higher later. Stay tuned.
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.
