Gold Summary

October 31, 2003
Jim Sinclair

Don’t give too much credit to the shorts of the Gold Cartel. Many people are expecting them to arrive in a significant way as gold approaches $390 and they are trying to run ahead of them. 
 
More and more, the Gold Community is starting to professionalize by looking critically at the advice provided by their gold advisors. In many cases, these advisors are failed traders and brokers who have proclaimed themselves knowledgeable while being long in this bull market.

Today was no victory for the shorts because gold closed relatively strong rather than turning into the rout of a few Fridays ago. That rout was created when many foolish bulls put in large stops which always spells trouble. In truth, we won this week and next week we’ll be back rested and ready for battle.

The day the majority of this Community stands tall, people like “Dan the Man” will buy the close in a big way and it will be all over for the shorts. I totally believe the Gold Cartel is pure COT bluff. When anyone is convinced they own a particular market, they are at the end of their elitist imperial madness.

An alert to Gold Community members who are holders of December gold options:

I understand that a few of you are still long in the December options. If you are, then you have not followed my instructions that no option is to be held when it has less than 30 days of life left. Options are speculative vehicles of both time and price sensitivity. If you hold them all the way into their maturity date, you risk losing 100% of the option’s value.

You must remember that gold options mature a month before their maturity date on a predetermined Friday. So December gold matures not in December but rather in November.

You move forward either by Switching or Legging:

Switching:

This is the easiest way to move forward but it also can be the most expensive. You can have your broker get what is called a “Switch Quote” for selling December strike $400 gold and buying February $400 gold. That quote will take into consideration the present value of both options and add a profit buffer for the floor dealer making the quote.

If you obtain before Monday’s opening the settlement price on the December and February $400 Calls, the difference between those values will usually be the bid side of the switch and an offer will be made.

You can limit what you are willing to pay for the switch and place the order or you can simply take the offering which means you have executed the switch. You would then have moved your commitment from December to February.

In gold, that means that rather than maturing in November you are alive and kicking until January 04. What I do is six weeks before maturity I prepare to sell some regardless of how I feel about the market in order to have the funds to do the switch without putting more money into the trade.

Legging:

We are bullish on gold so today when gold fell into the $382 to $384 area, I would buy a few - say 10% of what I wanted - in this case, February 04 gold calls. As gold ran up into the area just below $390 where floor traders expected the Cartel to arrive and were selling ahead of them, I would sell 10% of my December $400 calls.

Each time it falls, I buy 10% of the February $400 calls and each time it rises I sell an additional 10% of my December $400. Today, you would have been able to save 50% of the cost of spreading by legging it rather than spreading it.

If you find out that you sell 10% and it keeps running up, stop the procedure. If you buy 10% and it falls hard, stop the procedure and fax me under EMERGENCY for help. The worse problem you could have is you end up losing 10% of your position or getting long another 10% which you can liquidate under the Involuntary Position Rule.

Hear Me Loud & Clear!

Do not go into an Option Maturity Period when the open interest on gold options is as large as it is now long that maturity because the Cartel will be out to screw you.

I seek no publicity or anything for that matter other than your success. I do not want to see you being served for Thanksgiving dinner at the annual COT round up. Therefore, make sure you understand the instructions above.

From this minute forward, never ever hold an option with only 30 days to go. Learn how to leg your options forward but switch if you have to. Post my warning on every gold chat room there is on the Internet so nobody in this Community is hung out to dry by COT.

There is only one reason to hold an option and that is if you wish to take delivery. Over the weekend I will teach you how to trade short futures against a long option position which is a great technique and can be used masterfully to put the screws to the traditional skewers of the Gold Community, the six COT traders (A.K.A Andy’s Army).

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