Gold ETF Calls Surging Most Since U.S. Lost AAA

Gold options traders are placing the most bullish bets since August as Europe’s debt crisis spreads.

Calls to buy the SPDR Gold Trust outnumber puts to sell by 1.5-to-1, the most since Aug. 8, data compiled by Bloomberg show. The gap, the third-widest in more than a year, has risen 6.5 percent this month, with ownership of June $220 calls showing the biggest increase. They are 28 percent above the exchange-traded fund’s close yesterday of $172.07.

Gold is rallying an 11th straight year as global growth slows and European leaders struggle to contain the region’s debt crisis, which has erased about $8 trillion from world equities since May. The gold ETF has soared 24 percent this year compared with an 8.8 percent drop in the MSCI All-Country World Index of stocks in 45 nations. The Chicago Board Options Exchange Volatility Index, or VIX, jumped 32 percent yesterday, the steepest increase in almost three months.

“The list of problems in Europe is growing faster than the possible solutions,” David Christensen, who oversees $650 million as chief executive officer of ASA Ltd., which invests in mining companies, said in an interview yesterday at Bloomberg headquarters in New York. “That’s adding more fuel toward gold being added as a safe haven. Institutional investors and central banks are all adding gold to their portfolios.”

Demand for calls on the gold ETF, the world’s biggest exchange-traded product backed by precious metals, has surged to the highest level since Aug. 8. That day, the ratio jumped to a one-year high of 1.57 on the first trading session after Standard & Poor’s stripped the U.S. of its AAA credit rating. The ratio has averaged 1.28 in the past year.

VIX Jumps

The Chicago Board Options Exchange Volatility Index reached 36.16 yesterday, rising 32 percent for the biggest gain since Aug. 18. The VIX, as the measure is known, fell 5.5 percent to 34.16 at 11:37 a.m. New York time today. The CBOE Gold ETF Volatility Index, which tracks options on the SPDR fund, jumped 2.2 percent to 29.85 yesterday, above the 26.01 average in its three-year history. It added 0.5 percent to 30 today.

In Europe, the VStoxx Index (V2X), which measures the cost of Euro Stoxx 50 Index options, advanced 0.4 percent to 41.90 as of 10:33 a.m. in Frankfurt today.

Traders boosted bets yesterday that U.S. equities will move in unison as a surge in Italian bond yields intensified the credit crisis and concern grew that European leaders may be unable to keep the euro zone intact. The CBOE S&P 500 Implied Correlation Index surged 23 percent to a record 91.54 yesterday.

During yesterday’s rout, one out of 500 stocks in the S&P 500 rose, the fewest since June 29, 2010. The most-active contracts on the measure yesterday were November 1,200 puts, which soared more than fivefold to $16. The index hasn’t closed below 1,200 for a month. S&P 500 put volume jumped to 714,201 contracts, 2.2 times the number of calls.

Italian Bonds

The euro slid to a one-month low versus the dollar after LCH Clearnet SA raised the deposits it demands for clearing Italian bonds. Yields on the nation’s 10-year bond rose 48 basis points to 7.25 percent and the two-year yield surged 82 basis points to 7.20 percent, both reaching euro-era records.

“Never say never for how high gold can go if things in Europe get worse,” said Michael Gibbs, chief equity strategist for Memphis, Tennessee-based Morgan Keegan & Co., which manages $85 billion. “With the Italian bond yields taking off, people are taking risk off and moving their money to places that are perceived to be less risky.”

Investors added $1.95 billion to the Gold ETF in the past month, the most out of any U.S.-listed commodity exchange-traded fund, data compiled by New York-based XTF Inc. show. The gold ETF, also known by its GLD ticker symbol, has 419 million shares outstanding, up from 406 million a month ago. The level reached a record 434 million in June 2010.

‘Necessary and Mandatory’

“Gold and has become necessary and mandatory holding for all portfolios since the real interest rates are negative,” Michael Pento, the president of Holmdel, New Jersey-based Pento Portfolio Strategies, said in a phone interview yesterday. Pento correctly predicted the collapse in commodities in 2008 and said in January that gold would top $1,600 this year.

Gold may decline because the U.S. dollar remains the favorite place for investors to put their money during times of distress, said Stanley Crouch, who helps oversee $2 billion as chief investment officer at New York-based Aegis Capital Corp.

Futures fell 0.4 percent yesterday as the Dollar Index climbed 1.8 percent, the most since August 2010. As the Dollar Index jumped 6 percent in September, the most in almost three years, gold slumped 11 percent, the most since October 2008.

“If this is a beginning of a serious meltdown, then gold would be an immediate knee-jerk safe haven, but ultimately they will move to the dollar since it is still the world’s reserve currency,” Crouch said in a phone interview yesterday. “The U.S. is probably in better shape than everybody else, even though we are challenged. The dollar is regaining its preeminence.”

Sixfold Gain

Gold has risen 26 percent to $1,791.60 an ounce this year, beating the 4 percent advance in the Standard & Poor’s GSCI gauge of 24 commodities and the 9 percent return on Treasuries, according to bond data compiled by Bank of America Corp. The metal has increased sixfold in 11 years.

Money managers boosted their combined net-long position in New York gold futures by 6.8 percent in the week ended Nov. 1 to a seven-week high of 148,279 contracts, U.S. government data show. Futures may rise 8.8 percent to $1,950 an ounce by the end of the first quarter, according to the median of estimates compiled by Bloomberg last week. The predictions are from eight of the top 10 analysts tracked by Bloomberg over eight quarters. Two declined to give forecasts.

“If the euro blows up and we blow up after, where else are you going to put your money but gold?” David Rovelli, managing director of U.S. equity trading at Canaccord Genuity Inc. in New York, said in a telephone interview yesterday. “No one is safe in their currency.”

To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net; Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Steve Stroth at sstroth@bloomberg.net

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