A bombshell dropped today. Two more American Banks have gone bust! When markets open on Monday the short sellers and the Gold Cartel are likely to be up to their armpits in buy orders. I would suspect a good fraction of them will come from the holders of those Gold Call options! If gold puts in a strong performance rising $50 on the day then 35,828 contracts will be in the money. If gold puts in a stellar performance by going up $100 in the day then 56,296 contracts will be in the money…a stunning 79% of the open interest! Such a daily gain is not outrageously big; oil and other commodities have made daily moves of up to 10% recently.

The Cartel is in serious trouble. What if they pull out all the stops and sell like crazy? There are 10,708 put options that are sitting below the market down to $900 and a further 18,335 down to $850. That could provide a lot of cash for entry into the long side.

The massive call position in the DEC08 contract has increased yet again to 128,038 contracts while Puts reduced by 847 contracts to 70,595.

As usual, when there is very gold bullish news, we can expect a Battle Royale from the manipulative shorts on Monday but it might be of the "Waterloo" variety.

Adrian Douglas

July 26, 2008