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Sept. 13, 2005
I suppose they are out there but I have
seen virtually no opinion suggesting the Gold market could be
seriously going down from here. All the talk seems to be
"Inflation is coming!!" and gold is therefore "headed for $500 an
ounce". Maybe everybody is right but I see it differently.
What you can note (on the chart below)
is Gold actually made its high in November of last year and has
since just been rocking back and forth in $20 to $40 swings. In
spite of the fact Iraq has only gotten worse, and Iran is supposedly
pursuing nuclear weapons, and terrorist attacks/threats continue
(London for one), and OIL HAS GONE THROUGH THE ROOF (potential
inflation).....In spite of all that, Gold closed today exactly where
it started this year....I may be wrong, but if Gold has
not responded to all of those events, my guess it has done about as
much as it is going to do on the upside, and is now overloaded with
speculative buyers....For this and other reasons, I think gold is
primed for a big fall.
I am selling futures and
buying puts in the December contract shown below.
Essentially I see the past 9 months as a consolidation that is long
overdue to move hard one way or the other. Per the most recent
Commitments of Traders report (as of 9/6/05), there are 225,942
speculative longs in COMEX gold as opposed to just 66,397 shorts.
While this does not mean gold has to go down, when I see a major
consolidation jam packed with everybody on the buy side of a market,
I prefer to bet on seeing what happens when/if they start running
for the exits....Most markets tend to go down a lot faster than they
go up and gold is anything but an exception. In fact, my first real
baptism in futures came in this market in February, 1983 when I
experienced a 5 day $100 drop while having all my clients on the
long side....and there were no options then! Not that I am
anticipating anything like this, but I've included the chart below
just for old times' sake. That one week debacle was the first time I
considered quitting this business....and often wish I'd had the
sense to do so...As you can easily imagine, as a futures broker, one
does sort of live on the edge...ALL the time.
Enough said....Although I do believe it
is highly significant that gold has not responded bullishly to the
events of the year, my reasons for being bearish are probably
irrelevant....I just think Gold is going down and has a
good shot at dropping sharply below the lows for the year, taking it
somewhere close to the $400 level. If I am wrong, I
probably will be wrong in a big way, in which case the two puts to
every call strategy should take good care of us.
Give me a call if you have an
interest....I do think this is a "perfect 2 & 1". What Gold
shouldn't do is just sit here where it is....
Thanks much,
Bill Rhyne
800-578-1001
770-514-1993
Here is a good example of "anything can happen in futures".....
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