Gold Closes Down with General Markets on Option Expiration Reset

By Tom Luongo in Gold and Oil News | October 19, 2012 22:06 | Tags: , , , ,

I knew there would be days like this ahead at some point, though, to be honest, I didn’t expect them now.  A full-fledged market retreat happening before the election seemed remote but as we approach the final days of the campaign season and the growing likelihood of a Romney victory – frankly something else I was not handicapping even three weeks ago -it looks like the combined weight of a poor earnings season growing poorer by the day is overcoming the forces of stability.  As such once the margin calls begin the selling spreads throughout all asset classes no matter how fundamentally sound.

If you believe that the central bankers are in control of these markets then one of two theses should be running through your head at this point:

  1. They are allowing this wash out in equities to occur because they would rather see Romney win at this point than Obama for reasons unknown.
  2. They need the strategic commodities like gold, oil and food to blast higher on QE-inspired inflation from a lower base.

I’m sure there are other possibilities but variations on those two should be dominant.  The alternative view is that the central banks are losing control of these markets, which is more worrisome.  This is the main reason why gold has been weak this week and today’s selling is more of the same.  Since today is options expiration day, looking at the Option Pain number for GLD this month, minimum pain at $167, imagine my surprise at it closing at $166.97.  This little rout in Gold is nothing more than payback for last month when options writers got taken to the woodshed.  SLV closed at $31.09 versus an Option Pain number of $31.00

You really didn’t expect JPMorgan to take two consecutive months’ worth of near max pain did you?

About Tom Luongo
Tom is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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