Gold prices have surged, triggering a flurry of activity in the options market as investors bet on further gains. The precious metal broke through $US5000 an ounce for the first time, climbing as high as $US5100 in a broad rally across the metals sector. This surge is partly attributed to a renewed interest in the ‘debasement trade,’ with investors moving away from sovereign bonds and currencies towards hard assets like gold and silver. Near 3pm in New York (7am AEDT), spot gold had pared some gains but was still up 0.8 per cent at $US5028.71.
Increased trading volumes in call spreads indicate strong bullish sentiment. April Comex options saw heavy trading, with the $US5550/$US5600 spreads trading almost 5000 lots and the $US5500/$US6000/$US6500 1x3x2 strategies changing hands 1000 times. This activity suggests that traders are not only anticipating further price increases but are also positioning themselves to profit from these movements. As prices approach key strike levels, traders are adjusting their positions, potentially leading to a ‘gamma-driven squeeze’ that could push prices even higher.
Investors also snapped up call spreads in State Street’s SPDR Gold Shares, the world’s largest gold exchange-traded fund, betting on continued gains in the coming months. About 70,000 September $US590/$US595 and 37,000 March $US510/$US515 spreads were purchased, representing relatively low-cost bets on further price appreciation. Strategists at Susquehanna International Group note that the March position could yield a payout of 4.2 to one if the ETF rallies another 10.1 per cent.
State Street’s SPDR Gold Shares (GLD) is an exchange-traded fund (ETF) that allows investors to gain exposure to the gold market without directly owning physical gold. The ETF tracks the price of gold bullion, providing a convenient and liquid way to invest in the precious metal.
