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« The End of the Gold Bull Market | Main | SPDR Gold Trust (ETF) Call Options Competition »
Tuesday
May182010

Gold Prices Observations 19 May 2010

USD Chart 19 May 2010.jpg


The volatility continues across the markets and is aptly demonstrated here by the USD which started the day heading south and then bounced to gain 1.39%. Gold prices drifted lower in Hong Kong and in London before heading higher in New York as the chart shows. We have warned about volatility increasing and becoming the order of the day, so hang on to your hard hats and your position in the gold and silver sector as they will reward you in time.

Going forward get used to the idea of $100/oz movements per day in gold prices and say $2.00/oz per day for silver prices, then you will not be taken by surprise and not shook out of your position. We are heading into the summer season which can be a little lacklustre in the precious metals space, however, with the European pantomime going from bad to worse this summer may be a tad more active than usual. The new government in the UK will no doubt open the books and shock horror, the financial skeletons in the cupboards will come life with alarming frequency having a knock on effect on the pound. The race to the bottom for currencies will gather pace and now appears to almost unstoppable, the pound, the Euro and the US Dollar are all in deep pooh.

Gold Chart 19 May 2010.jpg

In a missive from Jim Sinclair today he summarised the action as follows:

The euro below $1.20 would strongly suggest Chairman Volcker is right on the subject.
 
The euro below $1.10 would confirm that Volcker is correct.
 
Presently there is key support at $1.2150.
 
The euro today traded as high as 1.2448 and dropped below $1.2150 trading now at $1.2202. That is outrageous activity for a major currency
 
There is no central bank nor is there any intervention that can stand against the tool of credit default derivative swaps. Gold is you're only safe harbor.




Keep smiling its all falling into place for gold and silver bugs.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.

Dont forget to enter the competition to win a free subscription, click here.

Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

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Reader Comments (29)

the only thing that glitters is g o l d and it will always glitter,please remember this.

May 19, 2010 | Unregistered Commentervirendra

yep keep smiling guys, i am waiting for a signal to short silver to 10 bucks. safe signal will be next month on break below 17.50. but probably i still could get a good short from 19.00 before that

May 19, 2010 | Unregistered CommenterDi

In the 2007/08 crash gold stocks and all precious metal stocks got hammered along with the rest of the market so can someone please explain why so many experts seem to think that if it tanks again the precious metal stocks will actually go up while eveything else goes down.

May 19, 2010 | Unregistered Commentergoldbug

Great article on "Why the euro is headed to $1.10–politicians see it’s the easy way out of the euro debt crisis" by Jim Jubak at www.jubakpicks.com.

- I too expect the euro to fall more.
- While the US$ is weak, it may be stronger than the euro and go up (for a time). The money printing will come home and I expect a later weak US$ and inflation.
- While the US$ is looking stronger I expect gold to be weak.
- When the US$ finally joins the euro and falls to the Kryptonite of run away paper money I expect gold to strengthen.

Full disclosure - I am currently out of Au and Ag, I plan to buy back in on weakness.

May 19, 2010 | Unregistered CommenterBC

There ya go Di, always the first in with your silly drivel. You must work on Wall Street.

May 19, 2010 | Unregistered CommenterSnakeman

Snakeman, we will who silly is when the depression is over.

May 19, 2010 | Unregistered CommenterDi

In the meantime you'll need to learn how to use the english language, there's an idea...

May 19, 2010 | Unregistered CommenterSnakeman

never took an english lesson, learned it from HBO movies and chat. that error was because i was typing too fast, but not as fast as the silver price is dropping

May 19, 2010 | Unregistered CommenterDi

Thinking it may be time to sell a May put on a metal stock? Pick up some $ and perhaps end up with a purchase at a discount?

I just today sold CMI May 67.5 puts. It has been on my buy list for a while. The $ is now in my pocket and the worst case is I get a stock I want at a great price.

May 19, 2010 | Unregistered CommenterBC

BC,

Have you gone naked in selling PUTS? Have you placed a stop?

May 19, 2010 | Unregistered CommenterGold Prices

Team,

Please try and remember that we debate the subject and not the person, thanks, Bob K

May 19, 2010 | Unregistered CommenterGold Prices

My apologies Bob, I won't get "caught up" again...S

May 19, 2010 | Unregistered CommenterSnakeman

It seems there are many who focus on the downside, short term risk. It has served me well to accumulate precious metals on pullbacks and hold. Since this precious metals bull market is obviously strongly up and there are few good alternatives, then it seems wise to hold and wait for an investment envirnment that provides viable alternatives. My hat is off who can trade this powerful precious metals bull market. Sincerely, William H Frost, CFA

May 19, 2010 | Unregistered CommenterWilliam H Frost

>Have you gone naked in selling PUTS? Have you placed a stop?

In this case naked. I want to own CMI, so in place of buy CMI I sell CMI puts and collect $. It is a nice way to ramp into a stock and collect $.

On Friday either the stock will be put to me at a cost I like or if not it will expire worthless and on Monday I plan to sell the June puts for more $. Eventually I will either own CMI or the premium will fall off and I will move to some other stock.

In addition to CMI I am considered picking up AEM at 60.00 by selling May or June 60 puts.

May 19, 2010 | Unregistered CommenterBC

BC,

If you sell PUTS on AEM and the gold stocks get hammered you lose money and the amount is unlimited, so you are carrying that risk. Why not buy the Call Option and have the risk limited to the deposit you put down and no more than that?

May 19, 2010 | Unregistered CommenterGold Prices

1 - I sold CMI and am only thinking about AEM. We shall see...

2 - It is not unlimited risk. If I am willing to buy AEM today for 60. I can be paid to wait until Friday and then perhaps buy it for 60. Tell me any way on 100 shr how my risk could be 10,000 or 100,000.

Currently I do not like the set up for AEM as much as I do for CMI. This is the same strategy that Buffet use to pick up some of his KO at a bargain and collect premium over time. I ONLY use it when I specifically want the stock and things set up correctly. The risk difference between CMI and AEM is part of why I like this better at this point in time for CMI.

At the end of the day I want to own the stock.

May 19, 2010 | Unregistered CommenterBC

More on risk.

If I buy 100 AEM at 60, my risk is $6000. If I wake up next day and AEM is at 0, I lost $6000. Evey night I have a risk the stock could go to 0 by next market open.

If on today my broker puts a hold on $6000 of mine and I sell a 60 May AEM put contract, I collect $125. Now I may or may not have 100 AEM put to me today or tomorrow for $6000. This is a defined risk strategy.

I seldom use this strategy. Only when I want to own the stock and the $ amounts all set us. As in my case with CMI. I am using the other day 1000 point inter-day drop as a worst case between now and end of day Friday (but yes I do see that CMI to 0 is a true worst case).

If my strategy is to pick up a quality company over time on pull backs at $xx or less per share, then selling puts is a way to accomplish this and collect some premium. I do run the risk of collecting the premium and the the buy not occurring. Because when selling a put or call the right to control the transaction goes to who buys the contract.

Using a put to buy a stock you want is very much like using a call to sell a stock that you want to get rid of. It is just another way to buy on pull backs or sell into strength.

May 20, 2010 | Unregistered CommenterBC

I had been ambivalent about the PM complex, but that did not stop me from buying some puts on HOG, Harley Davidson. This is going to be exciting. Di may make some good money. I look forward to buying SLW at a nice price in the future. I'm not brave enough to buy puts on silver.

May 20, 2010 | Unregistered CommenterDavid

i did some calcs. silver is going to 11.08 bucks (not 10.00 as i thought) in 13.66 weeks from today. if today (thursday) markets (the DOW) do not make new low (because they did considerable downside on European session) , they are going to increase the volatility to make a high tomorrow (friday) and silver can go to 18.20-18.30 and that's the best short position as i see it today. doesn't look like going to 19.00, but well, tomorrow we will have to validate it. a lot of folks where stopped on their shorts due to this volatility, so i expect the trend to 11 to be strong, because just as I, they will short with conviction below 17.50

May 20, 2010 | Unregistered CommenterDi

BC,

Dont mean to put off and we are enjoying the banter.

Friday arrives and AEM is say $56.00, then you pick up the shares for $60.00, but now you have a paper loss of 100*$4.00= $400.00 - $125 that you have already pocketed, so you are $275.00 down at the moment.

But you are happy to acquire AEM at $60.00 for the longer term, if we are reading you correctly.

May 20, 2010 | Unregistered CommenterGold Prices

Yes because I would have been down 400 if I had bought it at 60. Say my plan is to buy in at 60 or better. This is the worst case. If AEM trades at 59 I am up, if over 60 I keep my 125 (2% for 2 days) and try again next month options.

It looks like this will be the case with my CMI. I will likely buy at 67.50 (less the 0.95 I previously collected) and say is at 64 on Friday. That would put me down 255.

Actually with this drop it is a way for me to see a worst case. Of course if I could have seen the future ....

May 20, 2010 | Unregistered CommenterBC

A second choice would be to buy back the put mid day Friday at say 415 for a loss. If I am speculating, then I likely buy back, if I am adding to a growing position over time, I am glad to pick it up under 60.

May 20, 2010 | Unregistered CommenterBC

Bc, Thanks, interesting stuff.

May 21, 2010 | Unregistered CommenterGold Prices

As an illustration I made another trade today with CMI. So far I have:

- In May I was looking to get into CMI.
- 5/20 with CMI below 70, I lock up $6750 with my broker and sell the May 67.50 call (collect .95)
- 5/22 the option expires. With CMI at 65.60 I can buy the call back for about 2.00 or let it be put to me for 67.50. I want the stock so I take it at 67.50.
- 5/27 I sell the July 72.50 call for 3.00.

My net cost is now 63.55 (67.50 - .95 - 3.00). In mid July I will have 3 choices.
- If CMI 72.50 I can let it be called away for 72.50 and my profit is 13.26% in 2 months.
- If CMI > 72.50 I may roll to a later contract and collect more $.

For me this ONLY way this works is because I want to own CMI. Otherwise the holding could present problems. In some cases I may also buy a protective put to limit my my risk.

May 27, 2010 | Unregistered CommenterBC

BC,

Thanks for the illustration, its very much appreciated, although we still lean towards a simpler approach as it has been profitable for us in the past.

Also, some of our readers are new to any form of investment and others are experienced and sophisticated traders so the mix varies considerably, which adds colour and balance to what we do, which is great.

May 27, 2010 | Unregistered CommenterGold Prices

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