Have We Missed The Boat On Gold?

Towards the end of last week we wrote that it was likely that this summer would see a repeat of previous years when the price of gold has stayed within a narrow channel until resuming its bull run towards the end of August or early September.

We also warned our readers not to chance selling off any of their yellow metal holdings despite the many siren songs from the media and technical analysts that were predicting a fall below $1500 an oz.Some pessimists were even telling us that a previous support level around $1416, last seen in March, was a possibility.

Little did we expect that our timing would be so far out, brought about by the appalling US non farm payroll figures, acknowledgements by Geithner and other official or retired government figures whose voices probably would have commanded respect in earlier times that the US economy was far from out of the woods (at last a breath of honesty!) and then, to top it all, further European problems, bringing Italy into the firing line.

When we watched the situation develop we really felt that there was a distinct possibility that we might have missed the boat, having decided that we would look to begin topping up our holdings when, as we then anticipated, the price dipped below $1500 an oz.

The brutal fact is that we have no realistic idea whether the price is back in bull mode or this present surge will play out and, as in the past, summer lethargy will set in for the next four weeks.

At the time of writing the price is around $1550 in European trading so in a week we have seen a substantial rise from below $1500. Not wishing to risk a sizeable chunk of capital just to see the price rise wiped out before the close on Friday we bought Jan 12 $175.00 calls in SPDR Gold Trust (GLD) and Silver Wheaton (SLW) December $39.00 calls, the last because this stock has looked cheap while not yet reflecting the action in the silver price.

At least now we have some insurance at a reasonable cost if the gold price continues its upward momentum. Should it stagnate for the next three/four weeks at around the $1530 to $1560 level we are expecting to buy, as we will if it drops back below $1500. It is on our minds that we do not wish to find that we have missed the market by attempting to buy at the low as this is likely to only represents a maximum loss of around 8% which will very quickly be made up when the September run up commences – if it doesn’t happen before! We may very well change our minds before the week is out and plunge in with both feet.

Today’s Comex price action may very well set the scene. If it steadies at around the $1540 level then then that may be sustained until mid/end August. A sharp fall could open up a drop to $1460, more likely $1490- $1500. As we said in our post last week – better safe than sorry. The thought of missing out on the next round of golds’ upward movement and consequently seeing the value of our capital deteriorating is a sure motivator to this ultra conservative investor to ignore the ego trip of trying to get in at the bottom at this present time. Mr Market can easily confound us all.

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