Stocks rally, gold stumbles

As investors amble back into shares to end the quarter, the price of gold (COMEX:GCK14) continues its recent slide.

Gold futures expiring in April shed $10.60 (0.83%) to $1,283 per ounce trading at the lowest price since early February. One of the most active strikes in the SPDR Gold trust ETF (Ticker: GLD) options Monday saw investors snap-up rights to sell shares at a fixed $122.00 per share by May indicating further pressure may be ahead for the precious metal. Put options at that strike are currently 1.14% below the market price of the SPDR Gold Trust ($123.61). Option traders drove premiums up by 14.36% over Friday’s closing price, paying as much as $2.15 per contract to buy more than 5,000 put options at the strike price where less than 2,000 positions were previously owned. The following chart highlights the open interest reading across all strikes expiring in May, with the single heaviest population of 12,100 put contracts at the 120.0 strike.

Earlier in the year gold was supported by the prospect that the Fed’s taper might last all year. And even after, that the central bank might not budge its short term fed funds rate for a considerable period of time. However, the Yellen reference to “six-months” following the end of its tapering process caused the market to run amok over its expected timing of interest rate changes. Gold investors argue that the yellow metal better represents a store of wealth when interest rates are set at artificially low levels. Any hints that yields may rise sooner rather than later typically pull the rug from beneath its feet. But also likely harming gold is the failure of investors to maintain a grasp on the fear premium ushered in by the jump in geopolitical tension surrounding events in Ukraine. For now, it appears that following a strong first quarter, gold’s fortunes are getting back to where they were in the second half of 2013 when its price closed down for the first year since 2001.   

Gold call and put options for May expiration 

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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