January 31, 2011 – So Close, Yet So Far on Gold

Featured Trades: (GOLD), (GLD), (DGZ), (GLL)

2) So Close, Yet So Far on Gold. Close, but no cigar on getting out of my gold puts on Friday. We opened low enough on Friday morning to get within striking distance of my downside target for the barbarous relic at $1,280. But once the rout in equities started in earnest, it was off to the races for gold, and it was all over for gold put holders but the crying. Gold managed to pull a $36 rally out of the hat on aggressive short covering before giving up $10 at the close.

We knew all along that gold was never going to make it to $1,280 in one straight shot. If you want to see why long term bulls are so determined that this level will hold, take a look at the chart below, which shows the convergence of several trend lines around my target. I think we'll take another shot at the downside, in days, if not weeks, and double bottom at the very least. Keep in mind, also, that owners of the gold put spread have time decay working in their favor now, as we are so solidly in the money.

Gold Sure Was Getting Cheap