I made a chart (below) showing the concentration of gold call options that expire by December 2008. Notice the large concentration of open interests at $900, $950, and $1,000 - a potential negative gamma environment. The impact of the negative gamma effect will be significant if the calls were predominantly sold by financial traders rather than producers (because producers usually don't delta hedge). The former seems more likely, considering the fact that many gold producers have been abandoning their hedging programs as of late. If the correction/consolidation is near its end, and gold is about to move higher, a rally from $900 to $950 (even $1,000) could happen very fast. This scenario seems similar to the negative gamma effect in crude last year.
Source: COMEX
Let's just hope that last week marked the end of gold's correction. But what about seasonal factors? I'm tired of hearing about seasonal weakness in gold during the summer...this market is different than any other from the past; gold is not going to wait for you to vacation on the beach and come back in August. But what about potential deflation? I'm also tired of hearing about deflation killing gold...during deflation, cash/money is king, and GOLD IS MONEY. For now, the focus should be on INFLATION, even though deflation may set in later as we face a potential great depression.
Gold: 6-month
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