Monday is shaping up to be one humdinger of a battle with the Cartel on one side protecting their call options, and hedge funds on the other side that will inevitably go long on news two more banks have gone belly up. Despite this PM friendly news most hedge funds will probably side with the Cartel & ride out their short positions because this Pavlovian strategy has worked well for them in the past. But maybe not this time as fresh news out of Australia will make them think twice about the wisdom of staying short through Nymex & OTC Option expiry dates.

NAB will shock Wall Street

Jim Sinclair is sounding the alarm bells over this one because it essentially says a mainstream bank has publicly acknowledged that all paper backed by US housing loans is worth squat. US Financials had been hoping to write off small chunks of this worthless crap every quarter while slowly rebuilding their balance sheets to avoid bankruptcy along the way. Now enter the NAB who has utterly ruined their plans. So pray tell how will US Financials stay afloat now that everyone knows they are insolvent? I'll give you a clue and it's from a scene from the movie Apocalypse Now where a bunch of *helicopters* are heading into battle with loudpseakers blaring Flight of the Valkyries. Only this time it's Uncle Bernanke dropping wads of freshly printed dollars, with loudspeakers playing the Sesame Street jingle in the background. "Sunny days........."

ESL

GOLD COMEX OPTION STRUCTURE INDICATING MASSIVE PROBLEMS FOR THE GOLD SHORTS

By Adrian Douglas

On July 16 I published an article entitled "Comex Gold Option Open Interest Signals Big Gold Move "

http://www.marketforceanalysis.com/P... GOLD OPTION OI 2008.pdf

I made a further update of this article in the July 22 Midas column at www.lemetropolecafe.com. I remarked on how unusual it was that with only four trading days to go to expiry of the AUG08 Comex Gold Call options that a massive in-the-money open interest still remained despite gold having been savagely been brought down from $971 on July 15 to $948 on July 22. One would have expected with such a brutal drop the Call option holders would have cashed in their chips before their options expired worthless or significantly devalued. I suggested that these sophisticated investors must either know something or anticipated something. With now only one trading day left in these options the plot thickens. Gold has now been taken down to $928 yet only 1,230 contracts in-the-money have been sold since July 22 ! There still remain 21,796 contracts in the money. The total OI is a massive 71,308 contracts.

A bombshell dropped today. Two more American Banks have gone bust! When markets open on Monday the short sellers and the Gold Cartel are likely to be up to their armpits in buy orders. I would suspect a good fraction of them will come from the holders of those Gold Call options! If gold puts in a strong performance rising $50 on the day then 35,828 contracts will be in the money. If gold puts in a stellar performance by going up $100 in the day then 56,296 contracts will be in the money…a stunning 79% of the open interest! Such a daily gain is not outrageously big; oil and other commodities have made daily moves of up to 10% recently.

The Cartel is in serious trouble. What if they pull out all the stops and sell like crazy? There are 10,708 put options that are sitting below the market down to $900 and a further 18,335 down to $850. That could provide a lot of cash for entry into the long side.

The massive call position in the DEC08 contract has increased yet again to 128,038 contracts while Puts reduced by 847 contracts to 70,595.

As usual, when there is very gold bullish news, we can expect a Battle Royale from the manipulative shorts on Monday but it might be of the "Waterloo" variety.

Adrian Douglas

July 26, 2008

info@MarketForceAnalysis.com