Fed announcement Pending on May Expiration (circa 1645)

WEDNESDAY, APRIL 25, 2012

Fed Announcement on May Expiration (circa 1640)

Today is Expiration for May gold options. We are trading around 1640. While we have experienced some intra-day volatility; looking at the chart will show you just how little we have moved in the last few weeks. I discussed the fact that we tend to stick around 1650 for extended periods of time. Part of the thesis put forth here was that the longer we stayed here, the more bearish for gold. The idea behind the thesis is that the S&P's attractiveness would make gold look like a bulky weight in the portfolio and cause a sell off. That thesis must now be amended. The stock market has not continued floating higher, and political concerns in Europe have spooked some investors. I can say personally, simply from observing, that there has been a breakdown in the correlation in the way that gold and the stock market trade. They are neither inversely correlated nor correlated, they just seem independent of each other for now. As such, I think it is very difficult to look at stocks as an indicator for gold.

Both May and June (May expiring today) gold options are bid this morning. The Fed announcement is at 1230 today. No announcement impacts the price of gold more than the Fed announcement (even though the announcement rarely changes). I have been baffled by the trading action post Fed announcements too many times to try to come up with any logical arguments for what will happen, but I will say the following. Regardless of the news; we tend to sell off. If you had to take a leg, the short side would probably make more sense. The low from 2 days ago was approximately 1620. If things take off (and I don't think they should) to the downside, then look for support in this area as an opportunity to buy.