Apparently there is a large audience out there that did not like last month's article about Gold's Pending Collapse, as I was bombarded with the most negative feedback from readers in my nearly decade long career as a commodities analyst.  All I can say in response is that it let me know I was definitely on to something.  A funny thing happens when you go contrarian.  You notice over time that contrarian views only work when no one thinks you are right - and last month was pretty darn close.  So this month I come to you with the same view but a warning about next week - watch out.

Volatility Ahead
The FOMC and the unemployment report in the same week has been a setup for volatility in the financial markets for years, but this dynamic duo is especially worrisome next week.  After the Fed minutes were released on April 12th the market was thrown deeper into the seemingly never ending debate about the direction of the economy, inflation and near term interest rate policy.  The market walked away feeling that the Fed was less likely to continue hiking interest rates in the consistent pattern they had recently exhibited.  I see the market is more frustrated than ever and this FOMC meeting is setup to make major waves in the financial community.  Throw in the consistently volatile and unpredictable employment report 3 days later and you got the ingredients for an explosive week.

The US Dollar - Channel or Pause?
The US dollar is at a critical price and time in that we are about to see one of two events.  On one hand a reasonable technical argument can be made that the higher low set back on March 14th and the potential for a lower high to have been set on April 14th is the setup for a long term pennant or channel.  On the other hand one could argue that the market sent a resounding bull signal to the world by solidly supporting well above the previous lows and is simply pausing before we break to fresh near term highs.  The gut says we are looking at the genuine article here in a bull dollar market.  Keep in mind we are looking at years, rather than months, weeks or days, but the bottom line is events like next week's are the catalysts for such moves.

Gold's Congestion - Getting Ready to Blow it's Nose
Long time followers of gold would certainly agree that over the past few years the gold market tries to get a step ahead of the next big move in the dollar.  Often times the gold market is misled and the inevitable retracement occurs as the market takes back the excess move.  This has led to that charming two steps forward, one step back price action that we have gotten so accustomed to seeing in the intermediate term trend.  And yet this time is eerily different.  The market, perhaps for the first time in years, appears afraid to make a move.  A market that is historically willing to jump the gun on what will happen next is now patiently waiting.  This congestion is the biggest sign of an impending explosion, and I say the FOMC meeting is the gasoline and the employment report is the lit match.

Volatility Plays
Gold volatility has been dying for months, and in just the last couple of days we are seeing slight increases in volatility.  The best approach here is to be a buyer of option premium.  Look at June 430 puts for $300 or strangle the market with long 430 puts and 440 calls - assuming you are with the majority and think gold is heading higher.  An objective trader with either bias would have to admit the deal isn't in playing a side, but rather in buying both puts and calls as option premium is not taking into account the volatility right around the corner.  At the very least buy puts as protection against long futures.

James Mound, owner of JMTG Brokerage LLC, MoundReport.com and author of the book 7 Secrets, writes the Weekend Commodities Review Newsletter. Receive your free weekly subscription to the Weekend Review by e-mail. Click here.