Gold Option Traders Most Bullish Since Bottom In October 2008

Our friends at Stephen Flood's Gold Core write this morning:

 

Gold is mostly unchanged as investors gear up for the US Fed chairman, Ben Bernanke’s speech tomorrow.

Market participants are focussed again on the short term and the silly “will he, won't he?” debate re Bernanke at the Jackson Hole symposium. 

Bernanke may again obfuscate and not give clear guidance regarding monetary policy and further QE.

However the smart money such as PIMCO's Bill Gross, Jim Rogers, John Paulson and others believe that further QE and money printing remain inevitable. We would concur and advise investors to fade out the short term noise emanating from Jackson Hole and from assorted policy makers on both sides of the Atlantic and focus on the reality that further monetary easing and currency debasement will continue for the foreseeable future. A new and important bullish indicator for the gold market is that gold calls are at highs not seen since the October 2008 low as option traders go long gold in the belief that it will go higher.

It suggests that option traders believe that U.S. Federal Reserve Chairman Ben Bernanke will hint at or announce additional money printing and monetary easing at the Jackson Hole, Wyoming, symposium.

Alternatively, it suggests that they are bullish on gold due to the risks posed to the dollar and the risk of inflation taking off.

The ratio of outstanding calls to buy the SPDR Gold Trust versus puts to sell jumped to 2.69 to 1 on August 24th and reached 2.76 earlier this month, the highest level since October 2008, according to data compiled by Bloomberg. 

Ownership of calls is up 26% since the July 20th options expiry. Ten of the most owned actively owned ETF option contracts are bullish.

Option traders are regarded as savvier and tend to be more sophisticated then the more speculative futures traders.

Gold Rose 67% Between October 2008 And February 2009

Gold in October 2008 was trading at below $725/oz (see charts above). In the less than 5 months that followed gold rose 67.8% - from mid October 2008 to the high on February 12th 2009 at $1,215/oz.

A similar move today is quite possible given the long period of consolidation in the last 12 months and the strong fundamentals.

This could see gold rise from below $1,660/oz today to $2,785/oz in the first quarter of 2012 (see chart above).

August 30, 2012 (Source: GoldCore)

http://www.goldcore.com/goldcore_blog/gold-option-traders-most-bullish-bottom-october-2008