Tuesday, May 25, 2010

Gold and Silver Options Expired Today

Gold Price Close Today : 1198.00
Change: 4.20 or 0.4%

Silver Price Close Today : 17.763
Change -21.9 cents or -1.2%

Platinum Price Close Today: 1510.00
Change: -19.00 or -1.2%

Palladium Price Close Today: 440.20
Change: -9.20 or -2.0%

Gold Silver Ratio Today: 67.44
Change: 1.055 or 1.6%

Dow Industrial: 10,043.75
Change: -22.82 or -0.2%

US Dollar Index: 86.78
Change: 0.57 or 0.7%

Ahh, options expired today. What's that? SILVER and GOLD PRICES were dive-bombed by selling? All those $1,200 strike gold call options and the $18.00 and $17.80 call options expired worthless? What's that? The option writers, having fleeced the rubes, get to keep the premiums?

No, no, not in America! Say it ain't so in the land of the free markets and the home of the slave. Whoa, whoa make that Brave.

Today the US DOLLAR INDEX clumb and clumb. Broke through 86.50 last night reaching a high at 87.41 about 6:00 a.m. Eastern time, then dropping the rest of the day. Yet it had risen so far that it still finished the day up 57.3 basis points at 86.779.

Top of my head says today was only the upward reaction wave of a downward correction (A-down, B-up, one more C-down to come), but what does that mean? You can balance a flower pot on top of my head, and I don't even work for the government or a bank. A close above 87.40 gainsays my suspicion.

On open today the Dow dropped like a shot buzzard off a high roost. Bam! From 10,061 to 9,775, thump. Traded sideways in a range of 9850 - 9930 until 2:00 p.m., when the Nice Government Men or Mysterious Market Forces (pick your own poison) ran it up to close down only a smidge.

Hmmmm. Down 286 - 130 points all day, then PRESTO-CHANGEO -- the Dow rises above the psychologically crucial 10,000 to close at a cosmetic 10,043.75, down only 22.82. That's not strength, friends. How long can this farce play?

Get out of stocks. Frightful carnage awaits. No mystery what hit gold last few days: options expiry. Today gold was carefully herded below $1,200 to close on Comex up $4.00 at $1,198. Yet shortly after that close it rises over $1,200 and now trades at $1,208. Sure.

Gold's low has been posted for this move. Buy. Hundreds of option writers were delivered today from a fate worse than honesty, namely, the specter of paying off on 17.80 - 18.00 calls. Thus today silver had to swim upstream against gold, determined like a salmon heading for spawning to close down regardless. So on Comex silver closed down 21.9c at a tame 17.763, but in the aftermarket now tradeth at 18.08. Just random luck, I reckon.

Silver has found a new bottom at 17.50. As I write silver is stretching its legs for a run tomorrow. A close above 18.20 resumes silver's rally; a close below 17.50 dooms it downward. Silver might also see a rise to 1820c, one more fall to, say, 18.00 before taking off again.

Either way, buy silver.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger

© 2010, The Moneychanger. May not be republished in any form, including electronically, without our express permission.

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down. Whenever I write "Stay out of stocks" readers inevitably ask, "Do you mean precious metals mining stocks, too?" No, I don't.