February Gold is down $11.30 per ounce this morning at $1177.30 after being down as much as $52 per ounce overnight on the news that Dubai wants to delay payments to 70 international banks for the next six months. The amount involved supposed is about $60 billion dollars. That means that almost all of the banks involved have less than $2 billion in exposure to Dubai. In the big scheme of things, this is an insignificant amount. We will see if there is more to this story other than one brother, Abu Dhabi trying to teach another brother a lesson, Dubai. Abu Dhabi could easily pay off this debt for Dubai. I believe that this is the reason why gold has come almost all the way back.
The included chart shows the strong rally in gold on Wednesday and on some electronic trade Thursday, and then it shows the sharp break last night into today on the Dubai news. As the market gets a handle on what it thinks is the amount of money involved, we are seeing huge price recoveries from last night. The major trend for gold is still up. I am still looking for $1350 by sometime in the first quarter of next year based on the bullish inverted head and shoulders pattern that developed in gold over the past year.
On Wednesday, I chose to recommend liquidating for a profit the February $1100/$1130 call spread. I also recommended liquidating the February $1175/$1225 ratio call spread because I didn’t want to risk a spike up to the upper strike price following Wednesday’s close. I have seen charts like this before, and the gold chart is entering a phase where $50 and $100 spikes up AND down will become more common and when you have a close with momentum towards your upper strike price in a ratio call spread, you don’t wait around and risk the next day’s open if you want to last in this game for long. So we took some loss on that portion of the gold trade. We have many other positions that should take advantage of further gold rallies.
Here were the results from Friday for some of my clients:
We liquidated the February Gold ($1100 strike) call at $96.60 per ounce for a total gross gain of $6400 from our entry price of $32.60 per ounce.
We liquidated the February Gold ($1130 strike) call at $74.60 per ounce for a total gross loss of $5000 from our entry price of $24.60 per ounce.
So the total gross gain on the February Gold $1100/$1130 call spread was $1400.
We liquidated the February Gold ($1175 strike) call option at $51.90 per ounce for a total gross gain of $2970 from our entry price of $22.20 per ounce.
We liquidated the 2 February Gold ($1225 strike) call options at $31.20 each for a total gross loss of $3740 from our entry price of $12.50 per ounce.
So the total gross loss on the February Gold $1175/$1225 ratio call spread was $770.
We have a very strong position left for our remaining February gold positions, which includes the February Gold $1140/$1180 call spread and the outright February Gold $1270 call, if you have followed all of my recommendations. So, if February gold wants to head for the moon as some analysts suggest, then this position will do very well. Don’t forget, we have a lot of April positions as well.
Don’t forget that we are still trying to buy back the four short February Gold ($935 strike) put options for $1.00 per ounce each.
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.
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.
(February Gold options expire in 60 days).
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 118 days).
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.