Countdown to Gold's $1,300 Assault
Source: SK Options Trading††(7/27/10)
"We expect gold's assault on $1,300 to begin in about a month."
A gold close above $1,225 will signal the major rally to a new all-time high is beginning. It now appears that the $1,185 support level we previously saw is slightly lower but didn't drop further.
If gold were to break down, major support is at $1,140 and on the 200-day moving average (MA). In this bull market, gold has remained below its 200-day MA for a long period only onceóduring the 2008 financial crisis.
We see limited short-term upside with higher prices expected later this year and short-term downside at $1,140.
For those using unleveraged vehicles such as GLDówait it out. However, if you want to increase your positionóbuy half now and another half in one month or on drop in gold towards its 200-day MA, whichever comes first.
Selling August puts with strikes below $1,140 is also a possibility. Once they expire, we'll consider buying 'out of the money' call options on gold again with strikes above $1,250, expiring in January 2011. We believe it's the right way to go for the next month.