Quiet before a storm? Gold settle 1649.7

I had a conversation with a friend/ gold trader yesterday and he made an interesting point. We both agree that gold has a tendency to hang out for extended periods of time around the 1650 level. The days range, 1642 to 1659.6 was established overnight. Throughout most of the day however, we traded between 48 and 54, with little in the way of exciting movement. I asked my friend what he thought about this 1650 area and how it would effect the options. I asked assuming he would probably say something to the effect of "Well the more we sit here, the more we can expect volatility to get hit". That is not what he said. Instead, he pointed out that if we sit here, especially if the equities perform, gold will begin to lose its luster to investors. The "why should I be in gold if equities are performing well" mantra would be back in play. This, as he points out, leads to a bearish bias.... but not yet. We would have to see gold waver in tight ranges around 1650 and the equities start to rally for this to pan out.

It is worth mentioning that 5000 of the May 1580 puts were bought today. May options expire on the 25th. The puts went for just over 3 dollars (a dollar = 100 dollars in gold, so each option cost approximately 300 dollars). So, in essence, it is only an outlay of 1.5 million dollars, not super massive for a big fund taking a shot. Still, I like the concept behind it. Everyone and their sister seems to be bullish on gold. For the time being I think it makes sense to trade the ranges, as I expect us to sit still for a few days. But perhaps if the thesis my friend had comes true, and equities perform this week, we will see options traders scrambling for puts. In that case, this speculative play could pay off well as traders get lulled into a slow market sense of bored comfort.

As far as equities go, it was interesting to see that the S&P was down small, the Nasdaq was down 22, and the Dow was up over 70. The Nasdaq drop is due in part to Apple's big hit, but it is interesting to see the divergence among equity indexes (For those who have begged for an apple pullback.... here's your chance....)