26 August 2013

As a Reminder, Tomorrow Is Options Expiration On the COMEX

The goal line defense at 1400 gold is more understandable if one remembers that this is an important week on the COMEX.

Tomorrow is an option expiration for gold and silver, and $1400 is a psychologically important level for gold.

Round numbers like 1400 tend to attract a lot of 'buy to cover' stop orders and other types of speculative betting. So a break out through 1400 could trigger a quick run higher of another 30 or 40 dollars.

And perhaps even more significantly, this is the last week of the August delivery period, and gold is in relatively short supply for delivery. At this point a quick rise in price is likely to attract more contract holders to take delivery, rather than encourage eligible bullion holders to switch their COMEX warehoused gold to the 'registered' for delivery category.

I have included a snapshot of the calls that are subject to expiration this week in gold, and their distribution by strike price.  There are about 8,800 calls between 1400 to 1425 that will be expiring this week.

This is only a small part of the picture, but I think it is more relevant than usual for the reasons cited above.

We'll see how the price action continues through this week, for a better idea of what is happening. But it is hardly what one might call fundamentally honest and transparent.

If the cap on price seems counterintuitive you must have an old fashioned concept of what the markets are for, with such quaint notions as supply and demand and price discovery. These markets are all about power and influence, and using gimmicks and positional power and privileged information.

Sometimes when a coiled spring releases, it does so with some extraordinary power.