The worst isn’t over yet for gold. That’s what options trading is signaling, at least.
Even with prices dropping to the lowest since 2010, two of the three gold options attracting the most volume on Monday were wagers on further declines. A put giving owners the right to sell August futures at $1,100 an ounce was the most traded, and the price of the contract more than tripled. Futures in New York settled at $1,106.80, the lowest close since March 2010.
The question some traders are asking isn’t: why sell gold? Rather, it’s: why not? It’s becoming increasing likely that U.S. interest rates will climb this year, and the metal will probably lose out because it doesn’t pay interest like competing assets. At the same time, China bought less bullion than analysts were expecting, and the dollar keeps getting stronger.
“Gold prices may go down further, and I believe it may hit $1,050,” said Artur Passos, who produces the metals outlook at Itau Unibanco Holding SA. “The bearish trend remains.”
Futures on the Comex in New York slumped for eight straight sessions through Monday, the longest slide since March 2009. Prices on July 20 tumbled as much as 4.6 percent, the biggest such loss since June 2013. They headed for a ninth day of declines on Tuesday, losing 0.1 percent.
The $1,100 August put surged more than 200 percent to settle at $9.40 on July 20. That’s the biggest gain since the contract started trading in 2013. An estimated 2,300 lots traded, making it the most-active option on gold.
Money managers have been fleeing the metal. Speculators are holding the smallest net-bullish bet on gold since the U.S. government data begins in 2006.
Investors are also dumping silver, platinum and palladium. Combined net-long wagers across the metals are the lowest ever. Almost $2.7 billion was erased from the value of exchange-traded products tracking the commodities last week, the most since March.
For more, read this QuickTake: The Rise and Fall of Gold