With the U.S. dollar in flux and another crummy jobs report just announced, it is not a big surprise that traders are once again considering a flight to quality and safety in the gold markets. Gold is back above $1,200 per ounce, and many are betting that it is headed higher.
With Russian wheat prices adding quickly to the soft commodities, is that support enough for inflationary pressures again? Maybe, maybe not. But the whole deflation argument is already losing steam.
One way to bet on gold is to buy the SPDR Gold Trust (NYSE: GLD), which is trading at its highest level since mid-July. But rather than paying almost $118 per share, many traders are buying call options to gain exposure.
Today’s mid-afternoon trading saw more than 33,118 of the GLD Aug 120 Calls trade, and the premium last seen was a mere 55 cents. With an open interest of 44,793 contracts, it seems many think gold will come back in vogue.
The other GLD August strike prices from $117 to $125 in the calls saw a combined volume of more than 30,000 contracts traded.
September expiration is also seeing some elevated action in the calls, but not along the same lines. The total volume seen in the September 117 to 125 calls is already more than 20,000 contracts. As is the case with the August options, the combined volume of all the speculative September put options is not even worth comparing to the calls.
If we add the call volume noted in the contracts today between September and August strike prices, we get a combined 83,000 contracts traded in just these two months. In early afternoon trading, there have only been 7.4 million GLD shares traded. With each 10,000 contracts representing 1 million shares on a fully leveraged basis, you could easily argue that some 8.3 million shares worth of options contracts were traded.
This alone is not going to drive gold prices up, but there sure are some big bets being put back on by the gold bugs.
Follow Jon Ogg on Twitter @jonogg.
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