Volatility was softer across the board today, including May. This was despite the consistent buying of May 1520 calls. We believe the open interest will show that fresh money is speculating on these options. They seem to be more aggressively bought on dips than in rallies, suggesting someone may be accumulating for a possible play come expiration. Here’s how we think it could play out:

First, there is large open interest at the 1500 strike. If the shorts were made to hedge their negative gamma on a push through the strike a quick large move higher could ensue. Many technical analysts have opined that a settlement over 1500  should carry futures to 1520 or higher. We think that the buyer is looking for some event like that to happen. Bear in mind that gold and silver options expiration this month will be on a very thinly traded futures market (see below).

April 21^st, Holy Thursday: day before a holiday

April 22^nd: Good Friday: CME Closed

April 23^rd,Easter Saturday: Markets Closed

April 24^th,Easter Sunday: Markets Closed

April 25^th, Easter Monday: LME Closed (Largest Physical Bullion Exchange Worldwide)

April 26^th, Tuesday: May Options Expiration CME

So that’s the theory, here is today’s reality. The market did push up to 1500 and broke it by half a dollar. If buyers were probing for stops they found nothing but selling, at least this time. We think there will be more tests to come over the next week. Other than May activity there was very little to talk about today. Options were offered everywhere, most heavily in the backs but call skew remains curiously firm. If yesterday’s options activity was an aberration and not a sea change then the call skew is overvalued but as of now we won’t fight the market.

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Technical Analysis (GRI)

JUN GOLD

The market is bullish, alerting for continued pressing rallies this week. Look for follow through rallies to attempt advances beyond 1500+. A close over 1500+ is bullish and could fuel a strong run to 1520-1530. Any corrective dips should find momentum forces injecting support at 147880*. A close under 147880* will trigger near term setbacks in the 1480-14660* range, but only a close under 145460* marks a topping turnover.

MAY SILVER

The market is bullish and showing chances for a spike beyond 4500+. Any corrective dips should fight to hold over 4165 to stay bullish and bull flag. Closes under 4165 / 41325* alerts for a failing breakout and signals a reversal turn into a sustained correction and drop to challenge 3989* support for a larger top.

MAY COPPER

The market is in a short term downturn and targets a break against previous basing levels. Yesterday’s inside day keeps trade positioned for follow through selloffs, although, be prepared for modest corrections and shift to sideways consolidation at 420-430. Only a close over 43950* signals a turn back to bullish trade. A close under 41370 should help drive declines below 40760-.

In the News

Bloomberg (Reported 4/20/2011)

Gold rose above $1,500 an ounce to a record in London and New York as a weaker dollar and concern about debt and faster inflation spurred demand for an alternative investment. Silver reached a 31-year high. The dollar slipped as much as 0.8 percent against six major currencies, trading at a 16-month low, while a U.S. gauge of trader inflation expectations approached the highest level since 2008. Gold, which typically moves inversely to the greenback, has climbed this year as unrest in the Middle East and North Africa and Europe’s debt crisis boosted demand. Gold Exceeds $1,500 as Dollar Drops on Concern About U.S., European Debts.


Reuters (Reported 4/20/2011)

Gold shot up above $1,500 an ounce on Wednesday for the first time ever as worries over the health of the global economy boosted the metal as a safe haven. Spot gold hit a high of $1,505.21 an ounce and was bid at $1,505.16 an ounce at 5:42 a.m. ET, against $1,493.90 late in New York on Tuesday. U.S. gold futures for June delivery rose $10.60 an ounce to $1,505.70. Silver tracked gold higher, extending a stellar performance that has seen the grey metal outperform other precious metals this year. Silver hit a 31-year high at $44.56 an ounce and was later bid at $44.51 against $43.89. Gold breaks $1,500 as investors seek security


NSFutures (Reported 4/20/2011)

Outside market forces have once again shifted to favor the bull camp, as the US Dollar is weaker, energy and commodity prices are higher and even equities are showing noted strength in the early US Wednesday morning trade.  Apparently the gold trade prefers to see favorable US economic numbers and the trade generally expects to see a somewhat positive existing home sales report later this morning.  While equity markets in Asia and Europe were generally stronger during overnight trading, early indications are for the US  stock market to open today’s session with sizable gains.  The Dollar is weaker against most of the major currencies during overnight trading, although posting a gain versus the Yen. Precious Metals Commentary.

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