Conclusions - Aboot Derivatives

If we accept that a derivative formula is behind the activity in gold spot markets, then what you have is probably a form of volatility smile.

I would call it a 'volatility strangle' because that's what it feels like.

Since gold is a 50% risk weighted asset because it's a commodity, you might expect that if a volatility smile takes into account a 16% decline, you might actually get instead a 32%+decline. We have now declined 32%+ from the high of ~$1785.

I'm sure that even the bears are a little codswalloped by all the volatility. But then again, you have an endless troop of sophomoric self-appointed experts in economics pontificating over their call of the market, especially as they have been stampeding into DUST. I include Nouriel Roubini.

And as for GBN.V, the stampede into DUST dovetails exactly with a Long Strangle strategy after an almost two-year decline minus three months, from Dec 2010 to August, 2012. If the initial decline was two years, then the so-called flat settlement period should last until the end of August 2013, some 8 weeks' time, after what was supposed to have been a flat year.

Not for nothing that the company declared a loss in August, 2012.

-F6