INVESTING 1,289 views

Gold ETF Speculators Brace For Speed Bumps

Gold has been on fire in 2016. While the commodity rallied at the start of the year as stock markets sold off, it more recently enjoyed its “safe-haven” status in the wake of the “Brexit”-fueled broad-market plunge in late June. Additionally, the Federal Reserve’s hesitancy to raise interest rates has helped boost the malleable metal to levels not seen since 2014.

Gold’s impressive run is mirrored in the price action of the SPDR Gold Trust ETF. Year-to-date, the exchange-traded fund (ETF) is up 27%, and hit a two-year high in early July. However, with technical resistance looming just overhead, one notable hedge fund slashing its stake in GLD, and rumblings of a potential September rate hike resurfacing, this uptrend could be on the verge of stalling out in the near term — a fear shareholders appear to be bracing for via options-related insurance.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, GLD’s 10-day put/call volume ratio has jumped to 0.83 from 0.61 over the course of August. What’s more, the current ratio ranks in the 89th annual percentile, meaning puts have been bought to open over calls at a faster-than-usual clip.

Echoing this put popularity is GLD’s Schaeffer’s put/call open interest ratio (SOIR) of 0.65, which is docked above all other readings taken in the past year. Simply stated, short-term speculators are more put-heavy now toward GLD than they’ve been at any point over the last 12 months.

Given the ETF’s longer-term uptrend, it’s a distinct possibility that a portion of this activity – particularly at out-of-the-money put strikes — is a result of GLD shareholders hedging their existing stock positions against a near-term pullback. Adding credence to this“married put” theory is the activity that took place in GLD’s options pits on Monday, Aug. 15.

According to Trade-Alert, it looks like one speculator sold to close a block of August 125 puts ahead of this Friday’s expiration, and purchased to open a block of 33,000 September 115 puts and a 26,000-contract lot of September 125 puts. While this could be the result of a “vanilla” options trader rolling her bearish bet out, it could also be indicative of a GLD shareholder initiating a protective put, effectively locking in a minimum selling price in the event of a near-term pullback.

On the charts, the SPDR Gold Trust ETF recently hit a double-top near the $130 mark — an area that served as resistance in March 2014. This technical level could be reinforced as a short-term ceiling, considering nearly 109,000 contracts collectively reside at GLD’s August and September 130 calls.

Off the charts, recent hedge fund filings revealed Soros FundManagement LLC — run by billionaire George Soros — cut its stake in GLD to 240,000 shares in the second quarter from 1.05 million shares. Additionally, New York Fed President William Dudley earlier said a September rate hike “is possible,” while Atlanta Fed President Dennis Lockhart said he is “not prepared to rule out at least one rate hike” in 2016. These relatively hawkish statements come before tomorrow’s release of the minutes from the July Fed meeting, as well as the August payrolls report — due the morning of Friday, Sept. 2 — two potentially big catalysts for gold prices ahead of September options expiration.