Gold's bullish sentiment seen easing as record rally stumbles
Gold has already lost more than 5 per cent from its intraday peak last week on signs some trade tensions may be easing. PHOTO: REUTERS
LONDON – The gold rally has outshone other asset classes in April – even drawing some comparisons to bitcoin – as US President Donald Trump's tariff war reshapes the global economic order, pushing investors to look for safety. Now, shifts in options positioning has some market watchers saying it is time to get cautious.
As bullion hit a record on April 21, the trading of options on the SPDR Gold Shares ETF surpassed 1.3 million contracts, a level never reached before. At the same time, the cost of hedging against declines in the exchange-traded fund sits near its lowest level since August while implied volatility has surged, an unusual pattern.
'Gold and bitcoin have exhibited spot-up, vol-up dynamics, similar to Mag 7 in recent years,' said Mr Tanvir Sandhu, Bloomberg Intelligence's chief global derivatives strategist. Call demand for the metal has surged, while the recent drop in the asset has made the implied volatility across strikes more balanced, he added.
Gold has already lost more than 5 per cent from its intraday peak last week on signs some trade tensions may be easing. Meanwhile, hedge fund managers have cut their net long futures and options positions on the metal to the lowest level in more than a year, the latest Commodity Futures Trading Commission data show.
The recent risk-off period, catalysed by tariffs and led by the theme that 'US Exceptionalism' is ending, has helped gold's strong outperformance versus other asset classes this month, including Treasuries and US equities.
But for Barclays strategists, the metal is running ahead of its fundamentals. In a note last week, they pointed out that the recent streak of monthly gold purchases is not unusual relative to the long-term trend of central banks buying the asset.
The outperformance has also brought significant speculation, with calls on the gold ETF skyrocketing after Trump's 'Liberation Day,' leading to an inversion of skew, Barclays's Stefano Pascale noted. That, along with the drop in hedge fund positioning and the recent decline in bullion are reasons to be cautious – at least in the short term, the strategists said.
'We think that gold is going to come down,' Mr Pascale said in an interview, adding that the commodity is 'dislocated' with respect to its 'fundamental drivers' of the US dollar and real rates. 'Technicals are starting to be a little bit stretched.'
Mr Garrett DeSimone, head quantitative analyst at OptionMetrics, sees similarities with bitcoin. And to him, both assets could rally further as their implied volatility and skew remain within the long-term historical ranges.
'From the options market perspective, upside and downside weights are pretty even,' he said.
With Barclays's proprietary indicator showing that sentiment is still bullish on gold, the strategists recommend selling June calls to buy puts for a zero-cost risk reversal.
'Obviously, the trade is mostly directional, so for this trade to really work gold has to come down,' said Mr Pascale. BLOOMBERG
Join ST's Telegram channel and get the latest breaking news delivered to you.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Straits Times
25 minutes ago
- Straits Times
Lebanon will keep its airspace open, minister says
FILE PHOTO: Smoke rises, following an Israeli strike on Beirut's southern suburbs, after the Israeli military issued an evacuation warning for the area, as seen from Baabda, Lebanon, June 5, 2025. REUTERS/Mohamed Azakir/File Photo Lebanon will keep its airspace open, minister says BEIRUT - Lebanon will aim to keep its airspace open, a minister said on Saturday, hours after officials said the airspace would be shut down in the evening amid Iran-Israel conflict. "The airport will remain open unless something emerges beyond our control," Lebanese Minister of Public Works and Transport Fayez Rasamny said while touring in Beirut-Rafic Hariri International Airport. The Middle East Airlines (MEA), Lebanese national carrier, will increase its flights to compensate the delayed flights, Rasamny said. Earlier, state news agency NNA cited the Lebanese Civil Aviation Authority as saying the country would temporarily reopen its airspace on Saturday at 10:00 a.m. (0700 GMT), and it would be shut down again from 10:30 p.m. till 6:00 a.m. on Sunday. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
Straits Times
2 hours ago
- Straits Times
Iraq reopens Syria crossing for trade and passenger traffic
FILE PHOTO: Iraqi army commanders visit by helicopter a military base near a border crossing with Syria at Al-Qaim, Iraq January 18, 2021. Picture taken January 18, 2021. REUTERS/John Davison/File Photo ANBAR - Iraq has officially reopened the Qaim border crossing with Syria for trade and passenger traffic, a spokesman for the Iraqi border authority said on Saturday, marking a key step in efforts to normalise relations and revive economic ties between the two countries. 'The Qaim crossing is now fully operational for both cargo trucks and civilian movement,' the spokesman told Reuters, adding that the reopening followed joint security assessments by Iraqi and Syrian officials. The move comes three months after Syrian Foreign Minister Asaad al-Shibani visited Baghdad and urged Iraq to resume cross-border trade. The crossing had been shut in the wake of the revolt that toppled President Bashar al-Assad and the ensuing years of conflict that destabilised the region. The reopening is also seen as a sign of warming ties between Baghdad and Syria's new leadership under President Ahmed al-Sharaa, who has sought to re-establish diplomatic and economic relations with regional neighbours. Iraqi officials say the two governments have intensified coordination on border security and trade facilitation since al-Sharaa took office last year. 'This crossing will serve as a strategic corridor for commodity trade between Iraq and Syria,' said Turki al-Mahallawi, mayor of the town of al-Qaim, where the border post is located. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
Straits Times
3 hours ago
- Straits Times
Boeing resumes China deliveries with 787-9 jet to Juneyao Airlines, Yicai reports
BEIJING/HONG KONG - Boeing delivered a new 787-9 aircraft to China's Juneyao Airlines on June 14, Chinese media outlet Yicai reported, as trade tensions between Beijing and Washington ease. The delivery comes two days after a Boeing 787-8 Dreamliner with 242 people on board crashed in a fireball shortly after takeoff in western India. Boeing and Juneyao Airlines did not immediately reply to Reuters requests for comment on the Yicai report. The US aerospace giant had suspended new aircraft deliveries to China in April as President Donald Trump's tariff war escalated between the world's two largest economies. Boeing said at the end of May that deliveries would resume this month after the tariffs were temporarily scaled back for 90 days. China and the US concluded two days of negotiations in London on June 10 to resolve key trade issues in the two superpowers' bruising tariff war, where negotiators from Washington and Beijing agreed on a framework covering tariff rates. On June 9, a new Boeing 737 MAX painted in the livery of Xiamen Airlines landed in China, adding to signs that the planemaker was resuming deliveries to China. The country represents about 10 per cent of Boeing's commercial backlog and is an important and growing aviation market. Boeing had previously said customers in China would not take delivery of new planes due to the tariffs and that it was looking to resell potentially dozens of aircraft. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
