A divergence in gold options is signaling the metal’s rally may pause as Europe’s sovereign-debt concerns ease, said William O’Neill, a partner at Logic Advisors.
The CHART OF THE DAY shows open interest in options that allow the holder to buy gold at $2,000 an ounce by December 2011 has surged 11-fold since May 11 on the Comex. At the same time, open interest to buy at $1,500 by the end of the year has slumped 33 percent, signaling that traders are “less optimistic” on short-term prospects for bullion, O’Neill said.
“People are starting to think we’ll see some financial stability in the next few quarters that will probably cause a bullish pause for gold,” O’Neill said yesterday in a telephone interview from Upper Saddle River, New Jersey. “Down the road, there are still uncertainties and the threat of inflation that will keep prices supported.”
On the Comex in New York, gold futures have surged 32 percent in the past 12 months, reaching a record $1,266.50 on June 21. Yesterday, the price climbed 1.2 percent to $1,213.50.
The December 2011 $2,000 call contract is the most widely held option, followed by the December 2010 $1,500 call.
“The short-term indicators look a little shaky,” O’Neill said. “People should take profit for now while maintaining a longer-term bullish view.”
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