Oil prices are up $6 a barrel this morning, its highest level in over two weeks, as escalating tensions with Russia heat up. The price of oil is at $121 and change and could go higher if a disruption of supply to Western countries is forthcoming. As you know, I was in the camp of oil going back above $120 before it got to $100 but the turn has been on a dime causing a huge jump in gold.

Russia is outraged about a possible deal between Washington and Poland to install a missile defense system in Eastern Europe and those concerns took center stage today. The defense system is seen as a threat by Moscow and other factors such as Storm Fay, and a weaker dollar has added a lot of pressure on oil today.

People are waking up to the fact that this is a huge deal and the continued presence of Russian troops in Georgia could keep the fire burning for higher oil prices. Last Friday I mentioned the gold stocks with some January call options and was hoping to scale into a position as oil headed back up. However, these positions “gapped” up so the entry prices are a lot higher than they were. With the sell-off in gold many traders started taking positions last week and it certainly is paying off today. Here is a look at the action:

Barrick Gold (ABX, $36.39, up $2.68). The January 35 calls (ABXAG, $5.00, up $1.40) were at $3.10 on Friday.

Goldcorp (GG, $34.98, up $2.55). The January 32.50 calls (GGAZ, $6.00, up $1.50) were going for $3.30.

Gold Fields (GFI, $9.05, up $0.39). The January 10 calls (GFIAB, $1.10, up $0.25) were trading for 88 cents.

Newmont Mining (NEM, $45.01, up $1.76). The January 45 calls (NEMAI, $4.90, up $0.90) were profiled at $3.35.

If you got into these trades last Friday or earlier this week, protect your profits. No one could have predicted the $6 jump in oil this morning but the Goldman Sachs (GS, $154.55, down $3.70) call of oil at $150 is looking like a real possibility if the tensions with Russia don’t ease.

Rick Rouse
Rick@OptionsMentoring.com

It’s been a rough month for Gold and it continued yesterday with the price falling $9 an ounce to $908. Other metals traded lower as well. Silver tumbled $0.38 to close at $17.14 a pound, while Platinum fell $92 to close at $1,563 an ounce. Copper dropped $0.14 to $3.44 a pound and Palladium dropped $16.70 to end the day at $354.40 an ounce.

Oil is below $120 this morning which is pushing the Dow higher by 160 points to 11,445. With the price of oil dropping, the dollar will continue to rally. That’s not good news for Gold stocks as many of them are trading lower this morning. We had a little success with Gold stocks at the beginning of July and we able to make some quick profits of 10%-25%.

I’m not bullish on Gold at the moment…I’m not really bearish either. Trading options on Gold stocks can be a tricky business and we were able to make some money trading these types of options when the market was falling and oil was rising. A month later, we are in a different environment. Take a look at how much some of the Gold stocks have declined from July 1. I’ll also list some September options that we will be watching.

Barrick Gold (ABX, $38.32, down $1.70) was $46. The stock was recently upgraded from “Neutral” to “Outperform” by Credit Suisse at the $40 level but is down 4% this morning. The September 40 calls (ABXIH, $2.25, down $0.55) may be worth a look if they can get below $2.00.

Goldcorp (GG, $34.64, down $0.61) was $48 and has dropped 14 points in a month. The company reported a surprise $9.2 million loss for 2Q and lowered its production outlook for the rest of the year. The September 35 calls (GGIG, $2.65, down $0.45) have lost 15% today and may be a good buy at $2.25.

Gold Fields (GFI, $9.86, down $0.08), was $12.57. The stock is down over 20% in a month and is a better stock trade than an option trade at this time. The September 10 calls (GFIIB, $0.75, up $0.05) would double if this stock is at $11.50 by September 19.

Newmont Mining (NEM, $45.45, down $0.67) was at $53. The company reported a decent 2Q, posting a profit of $0.61 a share, compared to loss of $0.89 a share in the prior year quarter. Newmont has been making deals with other, smaller firms in an effort to expand its strategic alliances and those could pay off down the road. Watch the September 45 calls (NEMII, $3.05, down $0.55) and let’s see if they can get down to $2.50.

Although it doesn’t appear to be the case today, Gold stocks could be bottoming out after the steep drop in July. It’s unusual that we are getting such a huge rally before the Fed announcement and it remains to be seen what happens later in the day. The Dow has moved up another 30 points since I started this blog to 11,473. We’re looking at a 200-point gain in just over an hour-an-a-half as oil continues to trade below $120 a barrel.

Rick Rouse
Rick@OptionsMentoring.com

The market is on the upswing as we head to lunch following yesterday’s huge loss. Oil is down a little over $3 to $121 level and the talk is it could be on its way to $100 a barrel. Just a few weeks ago we were approaching $150 so the continued slide in oil is having a positive affect on the market.

The market also got some good economic news as the Conference Board’s July index of consumer confidence rose slightly to 51.9 from 51 in June. Consumer spending accounts for more than two-thirds of U.S. economic activity so the uptick was welcomed news.

The next stop for oil would be the $117 level which could pave the way for a slick road to $100 a barrel. Of course, the market may be getting ahead of itself but comments from OPEC’s president that oil’s current price is “abnormal” and could fall to $70 or $80 is fueling the fire. Oil is at a 10-week low and the recent slide has also coincided with a stronger U.S. dollar.

The dollar is at a 5-week high and a stronger dollar is pushing commodities prices lower. Copper, gold, and natural gas are all significantly off their highs of just two weeks ago. Barrick Gold (ABX, $42.63, down $1.57), Goldcorp (GG, $39.55, down $1.40), Gold Fields (GFI, $11.97, down $0.09) and Newmont Mining (NEM, $47.70, down $1.41) are all trading lower today.

Today’s rally can certainly be contributed to the fact that oil is lower. But any sustained rally is only likely to occur if oil continues to retreat. It’s tough to say if we get a straight drop to $100 a barrel for oil but if we do and it can stay at $100 a barrel or below, it will certainly help stabilize the market over the near term.

Rick Rouse
Rick@OptionsMentoring.com