Gold Daily and Silver Weekly Charts - August Option Expiry Next Week

Gold and Silver have risen quickly to a very important resistance level. I do not yet consider this an achieved breakout.

There are strong cross currents in these markets, the global sovereign debt situation in Europe, and the less remarked situation in the domestic US, highlighted but not captured by the debt ceiling debate which is more of a showpiece than a serious change and prioritization.

I suspect that if the US comes to a resolution of its troubles, for a few days at least the markets will rally, and the metals and perhaps Treasuries will be beaten like rented mules.

However, the looming crisis in Europe, which has the banks salivating for cheap national assets, is going to continue to weigh on markets by posing systemic risk in the manner of Lehman Brothers.

And as a reminder, the August Comex Options Expiration is next week.

I thought it was interesting that the US dollar has failed to rally along with Gold and Silver, at least to the same extent of breaking out to new highs.

Robert Baer, a distinguished ex-CIA officer, published a warning from his own knowledge and sources about a regional conflict in the Mideast in September between Iran and Israel. For now I consider this 'sabre-rattling,' and if Baer had not chimed in I would not even bother to mention it.

I would keep an eye on any developments, although these concerns are not new. Such a conflict, if it occurs, would have some benefits to a powerful few, but pose a significant risk to the many.   Macro events and crises such as war can be used to hide a multitude of sins, but like most deadly things involving the will to power, they sometimes are difficult to control for other ends.

Weekly US Economic Calendar - June Stock Options Expiration on Friday

Here is the weekly US economic calendar courtesy of Briefing.com.

As a reminder, this Friday is the 3rd of the month, and therefore a US stock market option expiration for June. Shenanigans are anticipated.

The expiration for July precious metals will not occur until the last week of the month on June 27.

Reminder: Gold and Silver Option Expiration for May Is Next Tuesday

As a reminder, the Comex will have their gold and silver option expiration on Tuesday, April 26.

Due to a lax regulation of the markets by the CFTC, there are sometimes major price manipulation shenanigans associated with these events, and these sometimes during thinly traded periods of time.

Someone sent me this article. It makes a point about the calendar holidays which I had not noticed. Here is their follow up aricle.

Since much of the physical buying comes out of Asia, and most of the price manipulation seems to originate in London and New York, this could be interesting. Although the setup is there for a thin trade, it takes a look at the composition of the markets, and the actual details of the options and contracts held in balance to other things, in order to make any judgements.

I do know that quite a few specs are jiggy with their recent gains in silver. This makes a retracement possible if someone 'gets the ball rolling' as they say. On the other hand, I have seen fellows use option expiration to breakout metals and other instruments and beat the shorts mercilessly. It is hard to trade this sort of event reliably if one is not an insider.

I stopped trading on the Comex a few years ago, before I scaled back my general trading, out of sense of discouragement in the integrity of their markets. But it is hard to get away from it, since their trades feed into and affect so many other instruments like ETFs, etc. When one take a position in a short ETF like ZSL, for example, one is trading with the Comex by proxy I would imagine.

While I do not believe in 'hanging bankers' at all, I think some serious investigations, indictments, and prison terms for the guilty white collar criminals would do a great deal to stimulate the real economy by reining in the excessive fee-based taxes from the financial sector, and refreshing the price discovery and efficiency of the markets.

But the Obama Administration is reform adverse, especially while collecting its famous billion dollar campaign slush fund. You don't get that kind of money from the "Yes We Can" crowd. And most Republicans are unashamedly servants of the pigmen.

Here is a nice, concise analysis of the Obama Administration's policy from an interview with William K. Black:

Ryssdal: What about the argument, though, that the financial system is so fragile still, and these cases so complicated, that we can’t really tear things apart with substantive investigations and prosecutions because it will all fall apart again?

Black: Yeah, that’s an excellent point. We should leave felons in charge of our largest financial institutions as a means of achieving financial stability.

Ryssdal: See, that’s funny because I was expecting you to come back with — I don’t know, JPMorgan earned $5 billion last quarter. How shaky can they be?

I am now flat in my trading account, and am not sure about putting on trades for the holiday weekend.

Gold and Silver Options Expiration At the Comex This Week

As a caution, not all option expirations are created equal, in terms of the shenanigans and market moves that they precipitate.

The breakout in gold and silver came off an option expiration.

Gold and Silver Option Expiration in a Holiday Shortened Week in the US

It's that time again, another option expiration next week on November 23 for the Comex gold and silver options. And it will be a short week because of the Thanksgiving Day holiday in the states.

Generally the game is for the wiseguys on the exchange to stuff the call options buyers by driving the price below the largest groupings of calls. And if a large number of calls are converted to futures positions they like to take the price down again in the two days following expiration.

But keep in mind that the breakout in the metals was done in an expiration gambit that failed, in which the smart money was caught offsides of a failed attempt to push the price down, and fueled a sharp rally on short covering of their own.

James Turk provides a not dissimilar observation in his own way here, but much more confidently seasoned perhaps than your humble proprietaire.

So let's see what happens.

Gold and Silver Options Expiration

Those who hold in-the-money options receive long and short positions in the futures today. Sometimes they like to run the stops to test the new hands on board.

Just in case you were wondering.

The Sprott Silver Trust is pricing tonight as well I believe.

Option Expiration and A Few Dates and Facts Worth Noting

As a reminder today is stock option expiration in the States.

Precious metals options expiration for November will be next week.

The US 2010 elections will be held on the first Tuesday in November which is the 2nd.

The Federal Reserve will be meeting on Wednesday 3 November, and is widely expected to be announcing a new quantitative easing program, particularly after the preface which Mr. Bernanke delivered today.

As an aside October 2010 is unusual in that it contains five full weekends, a welcome rest before the great events to come.

This is among my favorite times of the year, as the heat of summer gives way to the pleasant warm days and cool nights of autumn, and expectations of the harvest holidays and family gatherings rise, culminating in Christmas week and the beginning of a new year. The cycle of nature cares little for the comings and goings of men.

And finally, an interesting graph showing the percentage of gold as an investment in global portfolios.

Gold Daily Chart

Gold had a spectacular run the last two weeks, with only occasional pullbacks such as we had today.

Let's see if gold can hold together into its option expiration next week on the 26th.



Option Expiration Schedule at the Comex

A Paired Trade in Precious Metals Options and Futures Was the Basic Setup for the Sell Off

This contribution from a trader I know made sense to me. It helps to explain how the trade was set up for a sell off into the metals expiration, although I have not dug down into the numbers to test the theory in detail.

I think the fact that it occurred in rollover week facilitated a sell off. For this to have 'worked' those writing the gold and silver puts had to have been 'set up.'

Since these are generally fairly sophisticated players I had not thought of it, although I am sure they were hedged as well. Sophisticated traders are rarely purely long or short and are often involving intra-market dependencies. Still, one has to wonder if one of the big bank trading desks found a way to set up some large institutions or hedge funds, are they are often wont to do.

"What happened prior to the week of expiration was a large build up of commercial long positions. They were purchased in pairs with with puts. It looked delta neutral.

The banks sold the futures carefully creating a bear flag and then sold the balance on the break. Meanwhile the puts were kept and they minted money.

When you see a build up in longs on the commercial side it is never good in my experience, for gold and silver only.

Regards, Sabre"

Big Drop in Comex Gold Open Interest

The large drop in the August contract open interest (61,257) is to be expected since this is 'roll week' and those who are not standing for delivery will have to close their positions by Thursday night.

The new positions or 'rolls' into the October and December contracts totaled 40,372.

Recall that this was also an option expiration week.

Overall there was a net loss of 21,894 contracts.

It is too soon to tell if this was a capitulation that blew out the weak hands, but it looks as though it might have been one. The momentum traders will likely stand on the sidelines until gold can clear 1180, which was prior support. Traders have their eyes on the 200 DMA which is around 1145.

Comex Daily Bulletin #144

Gold Daily Chart: Déjà Vu All Over Again

A glance at the chatboards and the technical analysts last night cast quite a bit of gloom over the precious metals and the gold chart in particular after the smackdown in price it received after hitting another new all time high. Even some normally steadfast analysts seemed to lose their nerve at that big red 'engulfing candle.'

It didn't help apparently to have noted last week that gold almost always gets hit in an option expiration week, to a great or lesser degree depending on the underlying contract's popularity and the distribution of puts and calls. (Note 1) And of course this is an FOMC two day meeting week as well. Benjy and his mutts are all about the confidence game these days, and Larry Summers is the hairy-knuckled persuader who can move markets and destroy wealth, at least in the short term.

Some of it is disinformation from traders at hedge funds who spread rumours to support their own positions. Some of it is the natural exuberance of those who are hopeful but long suffering from being on the wrong side of a bull market. Even worse are those who simply ignore the markets and pursue some misplaced theory or belief for which they are willing to sacrifice themselves, and hopefully you, if they can manage it.

If you look at this chart below, as gold climbs within 'the handle,' it tends to get hit at the top of the channel with bear raids and profit taking, and then finds a footing near the bottom as the shorts cover and the hot money moves back in. It has done this twice now most recently. Why it comes as such a surprise that it is doing the same thing again is tied perhaps to the memory span of the markets now, which is about a day. This is a day traders market overall, and this is not a good thing.

This does not mean that the price of gold cannot drop from here and go lower, or even break down through support and change its trend. But it does mean that it has not done so yet.

It appears highly probable, to the point that I will be happily surprised if it does not, that the price of gold will go back down to test that trendline support, and set a firmer low, shaking out more weak hands. But anticipating the market too much to the upside or the downside is how speculators lose their nerve, or their money, which is consumed by losses, fees, and commissions through over-trading. They overleverage, overextend, and then throw their positions away at highs or lows.

And as for all these hysterical 'forecasters,' so certain of what will come next, and most often repeating the same, tired memes at every opportunity, keep in mind the old saying, "The words of the wise considered in quiet are better heeded than the shouts of a ruler among his fools." Ecclesiastes 8:17

Listen to all worth hearing, especially inviting a diversity of informed opinion, but allow the market and your own calm reason to instruct your actions. There is nothing more powerfully wrong and corrosively dangerous to your money than self-reinforcing group thought. I have seen the evolution of this condition on many chatboards as moderators and powerful and persistent posters start suppressing, first through peer pressure and then through outright bans and censorship, even fact based dissenting thought, contrary judgements, and evidence not supporting their assumptions.

I do not know which way this market will go, up or down. I like to think that I know what to look for by now, and how to listen to what the evidence of the markets is saying to us. All the rest is discipline, perseverance, and money management. Most professional traders find their niche in some market inefficiency or informational asymmetry, and leverage it with their deep pockets, certainly deeper and better connected than yours. As an amateur you cannot hope to compete against them in their short term games. But pride and greed have a siren's song.

If you cannot make decisions and reason calmly when trading, then you are trading to lose, and should just stop it, now. This HFT-driven trading is THE worst market for cheap tricks and outright scams that I have ever seen. Even though they are stealing pennies, it is over millions of transactions, and it debilitates the trade. The silver market in particular is a shame, although we have seen similar manipulation in the energy markets by the likes of Enron for example, that brought one of the US' largest states literally to its knees. And still there is no reform.

Find some safe harbor and stay there, and stop venturing out in dangerous and unfamiliar waters. Better to take an adequate, modest gain than to suffer an immodest loss. You are just feeding the sharks, and they do not need the encouragement.



Note 1: On the Comex / Nymex, the metals options for the GC contract expire on the fourth business days prior to the underlying contract's delivery month. If that day is a Friday or the day before an exchange holiday, then it is the day before that. This is the 24th of June for the July contracts. There is something known as 'Asia Gold' and 'Asia Silver' that have a different expiry, but they seem to be an odd product designed to capture Asian business and has a metric specification and no volumes. For the US contract based options it is the 24th.

Net Asset Values of Precious Metal Trusts and Funds in an Option Expiration Week

Although there will be plenty of commentary seeking some 'fundamental' reason for this pullback in gold and silver, I was looking for it, and noted last week that this week is the option expiration for the July contracts on the COMEX.

This is the kind of weakness I like to buy in adding to the 'long gold / short stocks' hedge I am running. It takes some guts but that is why we use charts to help take the emotion out of your decision and maintain a perspective. It also helps to ignore non-sensical forecasts and book-talking from chatboards and analysts who live in perpetual fantasies that come alive periodically when the market gives them a random nod. If you really want to see the worst in human nature, become a trader.

It really is that obvious anymore. Words like 'malfeasance' or at least 'nonfeasance' in office come to mind when considering the regulators at the CFTC and the SEC, their bosses, and the appropriate oversight in the Congress.

When there is a default on delivery, as I suspect there will be, I would hope that the usual 'non-involvement' and personal incompetency defenses will not be so easily accepted by a long-suffering public.

As a reminder, the GTU shelf offering closes on June 23.

Gold and Silver Option Expiration Dates Remaining in 2010

Not all expirations are equally influential on the markets. As in the case of stocks it depends on the popularity of the contract, and of course the size and distribution of puts and calls at the various strike prices.

Investors can ignore these 'wiggles.' I tend to keep them in mind for entry and exit purposes for non-futures positions, and potential hedging in my trading portfolio.