MoundReport.com's Monthly
Gold Report
Gold to Explode Next Week
James Mound
JMTG's Head Analyst
Apr 29, 2005
Apparently there is a large audience out there that did not like
last month's article about Gold's
Pending Collapse, as I was bombarded with the most negative
feedback from readers in my nearly decade long career as a commodities
analyst. All I can say in response is that it lets me
know I was definitely on to something. A funny thing happens
when you go contrarian. You notice over time that contrarian
views only work when no one thinks you are right - and last month
was pretty darn close. So this month I come to you with the same
view but a warning about next week - watch out.
Volatility Ahead
The FOMC and the unemployment report in the same week has been
a setup for volatility in the financial markets for years, but
this dynamic duo is especially worrisome next week. After the
Fed minutes were released on April 12th the market was thrown
deeper into the seemingly never ending debate about the direction
of the economy, inflation and near term interest rate policy.
The market walked away feeling that the Fed was less likely to
continue hiking interest rates in the consistent pattern they
had recently exhibited. I see the market is more frustrated than
ever and this FOMC meeting is setup to make major waves in the
financial community. Throw in the consistently volatile and unpredictable
employment report 3 days later and you got the ingredients for
an explosive week.
The US Dollar - Channel or Pause?
The US dollar is at a critical price and time in that we are
about to see one of two events. On one hand a reasonable technical
argument can be made that the higher low set back on March 14th
and the potential for a lower high to have been set on April
14th is the setup for a long term pennant or channel. On the
other hand one could argue that the market sent a resounding
bull signal to the world by solidly supporting well above the
previous lows and is simply pausing before we break to fresh
near term highs. The gut says we are looking at the genuine article
here in a bull dollar market. Keep in mind we are looking at
years, rather than months, weeks or days, but the bottom line
is events like next week's are the catalysts for such moves.
Gold's Congestion - Getting Ready
to Blow its Nose
Long time followers of gold would certainly agree that over the
past few years the gold market tries to get a step ahead of the
next big move in the dollar. Often times the gold market is misled
and the inevitable retracement occurs as the market takes back
the excess move. This has led to that charming two steps forward,
one step back price action that we have gotten so accustomed
to seeing in the intermediate term trend. And yet this time is
eerily different. The market, perhaps for the first time in years,
appears afraid to make a move. A market that is historically
willing to jump the gun on what will happen next is now patiently
waiting. This congestion is the biggest sign of an impending
explosion, and I say the FOMC meeting is the gasoline and the
employment report is the lit match.
Chart Courtesy of Gecko Software's TracknTrade.
Volatility Plays
Gold volatility has been dying for months, and in just the last
couple of days we are seeing slight increases in volatility.
The best approach here is to be a buyer of option premium. Look
at June 430 puts for $300 or strangle the market with long 430
puts and 440 calls - assuming you are with the majority and think
gold is heading higher. An objective trader with either bias
would have to admit the deal isn't in playing a side, but rather
in buying both puts and calls as option premium is not taking
into account the volatility right around the corner. At the very
least buy puts as protection against long futures.
April 28, 2005
James Mound
JMTG's Head
Analyst
email: info@Moundreport.com
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Charts Courtesy
of Gecko Software's TracknTrade
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