Mark Cuban Is Buying Options on Gold
Gold prices are rallying and gold bugs are rejoicing as big names start joining hands with them. Businessman and billionaire Mark Cuban is the latest name to get on board with the gold bulls.
Speaking with CNBC, the businessman revealed that he is moving some of his money to gold. According to Cuban, extreme market volatility has left investors confused; nobody can seem to figure out what’s happening.
The Chinese market crash was the first major event that shook the global markets at the beginning of this year. The volatility then spilled over from Asia, to Europe, and then shrouded the U.S. markets.
Following the crash in Asian indices, European indices were the first to enter the bear market. On the side, oil prices continued their slide to hit 12-year lows. Eventually, the U.S. markets gave in to the pressure and fell into correction.
The whole fiasco made market participants run for cover. The next best investment alternative turned out to be gold.
Cuban revealed that he decided to shift to gold after seeing momentum in its trading data. “When traders don’t know what to do, they go where everybody is. And I thought that would be gold,” said Cuban. (Source: “Cuban: ‘Confused’ about markets, betting on gold,” CNBC, February 11, 2016.)
Technicals reveal that traders are indeed starting to pile up in the yellow precious metal. The upsurge seen at the beginning of January has turned into a rally this month. A very obvious uptrend is now in play.
Chart courtesy of www.StockCharts.com
Cuban disclosed that he had bought out-of-the-money call options on gold that are now at-the-money. Cuban said that his trade will make him money even if gold prices go up marginally.
However, Cuban contends that momentum trading is causing this spike in gold prices. He believes that the rally in gold has little to do with fundamentals and more to do with traders jumping on the bandwagon. Cuban goes so far as to call gold a “religion.”
Whether the gold bugs agree with his argument or not, the markets are now certainly in gold’s favor.
The international political and economic headwinds, which are contributing to this gold rush, are expected to continue in the foreseeable future. Providing further strength to gold prices is Janet Yellen’s dovish tone. Expectations are that the Federal Reserve will be pushed to further ease the markets.
Chances of another rate hike are now out the window. On the contrary, the likelihood of a rate cut is back on the Fed’s table. If the U.S. central bank goes for a negative interest rate policy, gold will emerge as the most viable asset class.
Long story short: gold prices will likely head further upward with Mark Cuban’s call options ending up way in-the-money.
Well played, Mr. Cuban!