$Gold Weekly

One thing that continues to provide a focal point and a perspective on the gold market is the possibility that a derivative is behind market conditions for bullion prices.

This derivative is called a: 'Volatility Smile.'

Gold price declines for the last 9 months have followed a volatility band, or if you apply and compare the chart of a 3-dimensional probability curve to the log scale weekly chart, you come up with a way of framing that concept into an easier-to-understand outlook.

Note that in the paper written for ABN Amro in 2003, the outcome within the market is pre-determined over the period of the derivative contract. That means the data is generated for the volatility smile derivative, just as much as the theoretical nature of the trade generates the data.

The Volatility Smile being applied to gold futures and spot markets is very much in vogue, and has a major premium assigned to it at present. The only way to tell wether this trade is failling is when price pops outside of the top of the band, which will mean it's out-of-the-money. This has an extremely low probability of occurring unless the PHDs writing this derivatives contract got their variables wrong.

One variable that was completely unforseen was people taking advantage and buying physical gold into the low prices.

http://ectrie.nl/met/pdf/MET11-2-6.pdf

It doesn't matter how good you are at eyeballing markets or what a top gun trader you are, you will act in predetermined ways and fulfill the conditions of the derivative contract, whether you know it or not.

Right now, without turning entirely bullish for the moment, we can say that the immediate condition to be fulfilled is to track along the upper band, but remain within the volatility band.

Now, in completing the '4' down wave, you would have to go into the top of the previous intermediate '3' wave of the third upwave, much as we did in completing the '2' down wave.

Setting aside wishful thinking for the moment, we have yet to see a positive monthly close to return us over the 61.8% retracement.

http://scharts.co/19Z24MI

$ONE:GBN.V

If you wanted to take in the exact nature of GBN.V trading strongly inversely correlated with U.S. treasuries, you would have to know when Long Strangle equity derivative contracts opened and closed.

Thus from a period of late 2006-2009, and once again late 2010 - 2013 you have Long Strangle equity derivative contracts acting on GBN.V shares. GBN.V shares declined strongly inversely correlated with long-dated U.S. treasury bond prices in these periods.

Rick Rule, Sprott and Netolitzky probably had equity swap contracts with TD Securities held against GBN.V shares. I cite Rick Rule, because his Quest Capital company sold out of GBN.V shares very early in the gold bull market and never returned as an insider. Sprott Asset Management only wrote down their equity swap contracts with TD Securities in 2012.

They entered into these agreements, because they could not forsee that the gold bull market would be a Wave-One extension, presuming that the gold bull market would be a Wave-Five extension, with a blow-off at the end. My guess is Rule, Sprott and Netolitzky all presumed a repetition of the '70's parabolic blow-off, and kept GBN.V a worthless shell company as long as their equity swap contracts were in vogue.

That there will be a parabolic blow-off with many multiples of the gold price over the low of ~$1174 U.S. is extremely doubtful given the facts. You can expect 2.52 times over the low to fit within the rules of Elliot Wave Theory. This makes gold mining companies paying a dividend a highly coveted asset to own, especially since gold price rises are in the cards, but not as much as people expect. MORE SO THAN GOLD BULLION.

What you would be looking for aside from the blatantly obvious 'full retard' in company news releases, is the resumption of insider buying by Netolitzky. Once his double-dealing insider activity is completed, he will be free to accumulate more shares, and will have written down his latest Long Strangle equity swap contract with TD Securities, probably without renewing or rolling over.

I'm very sorry, but these are the facts as they stand.

http://scharts.co/19Z72ZU

TLT Weekly

Given that GBN.V shares are strongly inversely correlated with long-dated U.S. Treasuries, you would expect that once these prices crossed a previous pivot point, that this would hasten settlement of short positions on GBN.V shares.

This has not yet occurred in TLT, though the process of decline follows directly in treasury prices below its pivot point.

http://scharts.co/QbPCQ1

-F6