Looking back on gold...

Adam has created countless trading videos throughout the years. One in specific was recorded in February of 2010 regarding cycles in the future price of gold. Let us refresh your memory…click here.

Now that you have the back story and the video to prove it, let us share with you an article that was published by The Street yesterday afternoon:

Over the course of the past few months, one large buyer has accumulated approximately 50,000 gold call option contracts -- most of the calls are strikes between $1,600 and $1,800 an ounce and for expirations between August and December. In total, as much as $50 million in call premium has been paid out by the purchaser.

As the gold futures market is roughly 10x to 15x the size of the gold options market, this is a huge bet in absolute dollars relative to the liquidity of the market.

Considering that the calls are well out-of-the-money (gold, on a futures basis, today trades at $1,512), the call option is all premium and, as such, is a decaying asset. So, given the size of the purchase, the buyer is not likely an individual hedge fund -- more likely, it is a central bank or a sovereign fund.

It is interesting to note that all of the buyer's options mature after QE2, so the buyer might believe, for example, that the institution of QE3 holds a greater probability to be implemented than the consensus is currently forecasting.

The buyer is clearly betting on a large run-up in the price of gold during the summer and fall months.

With all this leverage in the hands of one owner, a sharp price appreciation in the price of gold could cause the shorts (on the other side of the call option trade) to continuously buy futures and further contribute to a rising gold price in order to maintain a flat delta. –

We read this article, and thought to ourselves, “Why does this prediction look so familiar?” Then we remembered…


We hope that you listened to our “Trade Triangles” and got your piece of the fifty-million dollar pie. If you’ve been wondering what MarketClub can do for you…now you know!

The MarketClub Team

4 thoughts on “Looking back on gold...

  1. Yes, gold may well rise to such heights because the overall outlook is indeed very bullish and up, but also keep in mind before getting too cocky that the market for gold is somewhat though not terribly overbought at this time.

  2. What difference does it make whether it is one buyer or a hundred buyers? The fact remains that $50 million is being bet on the future price of gold to be between $1600 and $1800 in the second half of this year. Looking at a gold long-term chart, this is not far fetched but LIKELY. The Point and Figure chart for gold on stockcharts.com gives a BULLISH projection of $1710 at this time. As long as Uncle Bernanke and the Fed remain in business, I would say the bet is perfectly safe!
    As a HOLDER of gold, it is all fine with me, thank you very much.

  3. what's the way to know it is only ONE buyer, which accumulated those options? doesn't sound very compelling.

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