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Warren Bevan

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Warning: Gold Breakout...Next Week

By Warren Bevan      Printer Friendly Version Bookmark and Share
Sep 17 2009 3:20PM

Before you send me scathing emails and put me onto the long list of precious metal bears let me say I remain a huge bull in regards to the precious metals and more specifically on gold and silver since they have monetary meaning. I am even more bullish on silver than gold because of it’s increasing industrial demand. I am finishing up an article on that so stay tuned next week.

The message I want to portray today is the fact that tomorrow is quadruple witching day where contracts for stock index futures, stock index options, stock options and single stock futures expire.

Too many times in the past bullish investors have been sucked in at the last minute and bought bullish contracts only to lose their shirt over the next few days as the price reverses quickly and takes their contracts out of the money allowing the contract sellers to pocket the full premium.

Yesterday, options on GLD were bought heavily, many of which are already out of the money. Do not get fooled into buying a short term options this week. From the open interest on GLD options I am guessing that we will see a quick move below $980 where 21,043 positions are open, and possibly even to $960 where 26,819 contracts are open in order for the option sellers to maximize their profit. Possibly even just below $950 where 25,764 contracts are open. The simple message is tread carefully until the witching ends.

Don’t get me wrong gold has broken out, but a quick setback is in the cards in my view. Even as I type this quickly, gold is under pressure and looks to be ready to move below $1,010. 

Next week gold should be free to recommence it’s move to all-time nominal highs again and it should be safe to trade. Trading is, in my view, the only option right now since you should have accumulated physical bullion at far lower prices, and if not you will get your chance again. Perhaps it will be more expensive than today’s price, but at least it will be on a pullback, relieving you from the stress of watching your investment fall further and further before finding a floor and moving forward on it’s next leg higher in this bull market.

Selling strength and buying weakness has worked so far in this bull market and I see that strategy continuing to be successful. We are just entering a period of strength.

Until next week take care and thank you for reading.

Warren Bevan



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