Just bear in mind that markets are visceral responses to events. They are governed by emotion, not formulas; so, if something is supposed to correlate “in theory,” it might not given this market we’re in.

In my view, gold is a difficult play right now, even though it may seem so palatable at this juncture in the markets.

So much negativity has been priced in that, if indeed markets are forward looking, and, if indeed all the negatives are priced in, why play gold when you can get in on the bottom. (That is, if you believe no further negatives could manifest themselves.)

On the other hand, this uniquely global recession is producing an interesting dynamic: huge demand for dollars, as a matter of course (e.g., repaying dollar loans, and buying dollar’s for the safety of Treasury’s depository status).

The demand for dollars is increasing its value in relation to gold….for now

I think, as some others (and not because I understand exactly, but because I surmise) that the dollar and treasury’s cannot be sustainable at these levels if trader’s perceptions of a quick (1-2 yr) recovery proves to be wishful thinking–and I believe it will.

I do think that we will be in this for many years to come, and I would guesstimate that some time around the second quarter of next year, when (and if) earnings continue to be lagging their historic trends, peoples hopes will collapse, and with them, the dollar and treasury’s; and from this point, gold would establish a solid range.

But first, you need people to stop being hopeful.

There is still downside potential for gold at this juncture, according to CNBC’s Rick Santelli (brilliant guy!), due to banks/institutions needing to sell gold to raise dollars.

I think its possible to see a 650 lvl, assuming an overly optimistic rally ensues. Then everyone’s hopes get crushed, and gold pwns everyone’s face in..

Disclaimer: DO NOT TAKE ANY ADVICE FROM ME

Just my opinion. I’m still looking in to the matter.. I don’t fully understand all the dynamics at play

Happy trading to you too!
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for further note, it is never the case that some asset/asset class should not ever have a reason to go down in price. If gold had limitless upside price potential, then it would be a good buy at ANY price; given that, sellers could exploit buyers by flipping the hell out of gold prices–and that would create its own self defeating dynamic, where buyer’s would “revolt” and thus consolidate prices of gold back down.

So philosophically speaking, nothing should be so good as to always be a buy… and if it is, it will probably crash when reality kicks in.

In short, I think gold could dip below the 7 handle

First off, I do not understand what “put out a call on it” means. Does that mean sell a call against a futures contract? Or against GLD? Or against a mining company? Or do you mean that you will buy a call of some kind, in which case you really need to focus on your terminology so that your understandning of options clarifies itself.

Gold may be in a trading range for a while. Personally I have been trying to find gold coins at a reasonable markup for a month. I finally found a source last Thursday, just as the price started to run. If we pull back to $750 or so, I will be buying more. I think we may have short term swings, but I also think we will see $1500 gold within two years, and ultimately much higher. Every major currency is inflating right now, and while they may maintain their relative levels they will all decline agianst goods (called inflation).

I cant comment on your option strategy until I am clear on what it is.