Rich G from England way…

Bill,..
This current July take down in gold should come as no surprise to anyone whose been following these markets since the ‘Bull started running’,..

Below are the charts for every year since 2001, from April through to December 28th,.. Note how a seasonal low coincides with the end of July,.. With the exception of 2006 and 2007, the July low has been the low for the rest of the year (2007 the low was again tested in Mid August but hardly surpassed prior to it’s great run up),.. The majority of the takedowns in price occur during the last 2 weeks of the July month, with the exception of 2001 and 2005 where the price was taken down in the latter part of June and proceeded to roll along the bottom for much of July,..

2001

2002

2003

2004

2005

2006

2007

It is perhaps no coincidence that the end of July coincides with option expiry day for the August contract, a subject that Adrian has been discussing in his always outstanding analysis. As we are well aware the price of Gold is almost always pulled down in the days approaching option expiry day as those who wrote the calls are keen to see them expire worthless. And in ‘full view of the cops’ they almost always get away with it,..

The August contract is a significant one, as it’s the last main contract before the December ‘Big One’, which makes this option expiry as relevant as it is,..

Looking at the open interest outstanding on the August calls, a large cluster sit between 920 and 960,..

900 4055

905 1190

910 490

915 43

920 983

925 1551

930 2130

935 927

940 2457

945 461

950 3416

955 212

960 3443

965 190

970 938

975 891

980 1875

990 775

1000 9855

In the last 24 hours, with the price falling from 973 to it’s current price of approximately 934, a staggering 12,044 option calls have been taken out of the money,..

Absolutely outrageous but, alas, reality. However ‘these plunges don’t come for free and a lot of ammo is used up which needs to be covered further down the line’,..

The same thing happened to the silver price last month on expiry of the July calls,..

On the day of expiry, I took note of where the largest number of option calls sat, which were at the 16.50 level. It was no surprise then that at close of play that day the price was plunged to 16.48 (see the graph below),.. In fact it was only held under 16.50 for some 30 seconds, exactly on the close, before then bouncing higher after the time had expired,.. It has not been back to those levels since!..

So where will ‘the shorts’ be keen on ‘plunging the price’ this time?.. My guess is the 920-930 area if they can, which is not ‘a million miles away from where we are now’,.. On that basis I’d recommend that anyone still looking to add to their gold positions should take advantage of the current correction and buy in around today’s levels!.. Option expiry day’s Monday, although one can’t always guarantee that the low will come in on that day, so one probably can’t go far wrong buying in at today’s levels. In reality whether you ‘fill your truck’ at 920 or 930, no one’s going ‘to split hairs’ with gold at $5000/oz,..

Another date to consider is August 5th, about a week later, when the Fed next meets,.. My guess is that they’ll be keen to keep the dollar well bid leading up to this meeting, before showing to the world that they have little intention of raising rates,.. This may keep Gold and other commodities pinned back for a further week before the ‘fireworks begin’,..