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Option Play: Gold Still Holding

Monday September 30, 2013 15:13

Over the long haul, there is no bigger "gold bull" than me, however the monthly chart tells a different story. 

    Fundamentally, one belief that I have and was discussing with another broker here at Zaner Group who is a thirty year veteran in this business was that "hyper inflation" is the only way that we can recover from our national deficit. This was nothing more than one broker talking with another on a Friday afternoon at the firm. However, this has been the platform for many great ideas over my 15 year career.

  My thought was that the only way we could even come close to paying off our debt which is in U.S. DOLLAR is by devaluing that dollar so it becomes worthless. Now we both did not agree with this solution, primarily because he believes that inflation is already taking course as he asked me, " aren't your expenses going up on a yearly basis...look at what items cost five years ago, just ten years ago...". I agreed with his point, but the rate of inflation over the last ten years will not help with our tremendous national debt, it has to be stepped up. He and I always go back and forth about this type of thing and we debate many other issues, but he always seems to turn the conversation into politics and I tune out. The one thing we could agree on this Friday afternoon is in the past, GOLD has been the most popular hedge against inflation among traders.

  I also tend to be of the opinion that central banks across the world cannot be trusted when it comes to printing fiat currency. That includes the United States and the FOMC. I'm not real sure what the Federal Reserve's goal is here by continuing to buy 85 billion dollars worth of mortgage backed security bonds every month. QE INFINITY could be absolutely bullish for the yellow metal in my view. There are many other countries who continue to manipulate the value of their currency as well, not limited to, but including Japan and China. I trust GOLD more than I trust any of these afore mentioned paper money printing presses.

  "Tapering" will continue to be the market moving word as we head into the last quarter of the year. Will they or won't they? Better yet, when? In Octaper, Novtaper, Dectaper, or in 2014? The Fed will be "data motivated" so it really is a flip of the coin. In fact, I wouldn't dare speculate when they may start to "taper", let alone cease all together. Many of the experts and analysts, I'm talking some of the smartest economist in the world, tried to guess last month that the FED would "taper" by ten or fifteen billion per month only to be embarrassed when the FED held fast at 85 billion. Even the smartest economist in the world was wrong.....the market.

  Technically, below on this COMEX/GLOBEX GOLD monthly chart the very first thing I notice is how the market has been on a downward move ever since it made the all-time record high of $1920/ounce back in the month of September 2011. On a monthly chart each candlestick bar represents one month. Secondly, I notice that the 9 period SIMPLE MOVING AVERAGE (SMA, red line) has crossed under the 20 period SIMPLE MOVING AVERAGE (SMA, green line) back in about the month of April 2013 and they are both pointing lower on pretty sharp angles AND the market itself is trading below these indicators. To me this is what I have coined a SUPER-TREND down. Since this is a monthly chart, it would be considered a long term SUPER-TREND down. Finally, not only is the market trading below the 9 and 20 period SMA's it is also up at what has been resistance over the last 3 out of 4 months, the 50 day SMA (blue line). Meaning every time the GOLD market has come up to the 50 period SMA (blue line) is has stalled out and now the 50 and 9 period SMA's are actually touching.

   By the sheer nature of the using SIMPLE MOVING AVERAGES (SMA's) as support and resistance areas, the 9 period SMA (red line) is the first area of resistance along with the 50 day SMA (blue line). I see these two SMA's as the first areas of long term resistance, then the 20 period SMA (green line) is the next area of long term resistance, and finally the top line of the BOLLINGER BANDS (BB'S, light blue shaded area) is the last area ofresistance. On the support side, in the long term on this monthly chart, all I see is the bottom line of the BB's (light blue shaded area). 

That is what I mean when I mentioned earlier in this commentary that the monthly chart tells a different story. See the monthly chart below and remember this is just my technical observation on a December Comex/Globex Gold monthly chart with some of my favorite technical indicators added to it. Only time will tell where we go from here. Past performance is not indicative of future results.

Monthly December Gold Futures Chart 


Well if the GOLD MARKET holds at this long term resistance level and continues to move lower then there could be an abundance of potential option set ups in my opinion. Everything from buying puts in a 3 to 1 ratio with a specific hedge to selling calls with unlimited risk. For more details on what I'm thinking, get in touch with me and we can talk about it. Thanks for checking out my commentary.  

By Matt McKinney


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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