Roughly one month ago, the price of a gold futures contract expiring in December was trading at just above $1,200 per ounce. In the past few days a so-called “bear raid” on the gold market in general has driven its price down close to $1,080. And while that’s a five-year low for the cost of the precious metal, the odds of it trading back beneath $1,000 per ounce, where it has not traded since October 2009, have also jumped.
According to the gold options market, the cumulative chance of trading at a triple-digit price this year has risen to just below 15%. Compare that to just a 4% probability when the precious metal was trading at $1,200 per ounce last month. Probabilities are calculated using the cumulative likelihood taken from premiums in the market for options.
The falling price of gold also boosts implied volatility, which in turn promotes the likelihood of further price declines and raises the demand for protective put options. Exchange traded funds have recently faced outflows by investors, while the known number of ounces held by ETF companies to back physical holdings fell this week to 50.3 million and the lowest since March 2009.