Big Rally Coming for Gold Prices
A trader is betting more than $2.0 million that gold prices could appreciate 10% in one month.
The bet on SPDR Gold Trust (ETF) (NYSEARCA:GLD)—the exchange-traded fund (ETF) that tracks gold—was made on Thursday, when bullish trades outpaced bearish ones.
CNBC reports that the trader purchased 10,000 July 125-strike calls for $2.29.
Since each call option accounts for 100 shares, this is a $2.0-million bet that the GLD will rise above $127.30 by July expiration. (Source: “The $2 million bet on gold rally,” CNBC, April 8 2016.)
The SPDR Gold Trust ETF is trading near $118.52, approximately 18.3% higher than its 52-week low of $100.23 reached on December 17.
The move comes as traders pour funds into safe haven assets like gold and silver as global uncertainty, the Federal Reserve, and oil prices weigh on the markets.
“Given how much it has moved just since January, just under 17%, you can see why risking just about two percent of the underline is probably the smartest way to make your bullish bets here,” CNBC cited Optimize Advisors co-founder Michael Khouw as saying on the network’s Fast Money show.
China’s economic growth rates have contracted to below seven percent annually, compared to above 10% over the past 30 years. Japan adopted negative interest rates in January, on the footsteps of the EU, Switzerland, Sweden, Finland, and Denmark.
The Federal Reserve, after hiking its near-zero interest rates by 0.25% in December for the first time since 2006 and projecting four rate hikes in 2016, left its benchmark rates unchanged in March and lowered its hike projections to two hikes.
Oil prices are currently trading near $40.00 a barrel, still far below the $114.00-a-barrel peak reached in mid-2014.
Gold prices logged their best weekly gain in three weeks on Friday, boosted by Thursday’s dovish remarks from Federal Reserve Board Chair Janet Yellen, who repeated that any rate hikes by the Fed will be gradual.
Any rate hikes by the Fed this year are viewed as bearish for the yellow metal, which grapples with high-yield-bearing assets in increasing interest rate environments.
A grimy outlook for quarterly corporate results has spurred risk-averse investors to pour money into safe haven assets like bullion.
The gold price for June delivery settled at $1,243.80 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract has added 1.7% this week, its best weekly gain in three weeks.
Options contracts give buyers the opportunity to obtain significant exposure to a stock for a relatively small price. They can provide significant gains if a stock rises, but can also lead to 100% losses if the call option purchased expires worthless because the underlying stock price went down.