It looks as if gold sales to cover stock margin calls has bottomed out and gold is on the rise as the new Frankfurt Agreement between Germany and France is reshaping the European continent. Expect Portugal, Spain, Italy and Greece to be thrown to the wolves as Germany emerges as a new superpower.
It will be interesting to see if Italy is able to keep its gold reserves in order to regain any credibility with international financial institutions.
David DeGerolamo
Gold ETF Calls Surging Most Since U.S. Stripped of AAA: Options
Gold options traders are placing the most bullish bets since August as Europe’s debt crisis spreads.
Calls to buy the SPDR Gold Trust outnumber puts to sell by 1.5-to-1, the most since Aug. 8, data compiled by Bloomberg show. The gap, the third-widest in more than a year, has risen 6.5 percent this month, with ownership of June $220 calls showing the biggest increase. They are 28 percent above the exchange-traded fund’s close yesterday of $172.07.
Gold is rallying an 11th straight year as global growth slows and European leaders struggle to contain the region’s debt crisis, which has erased about $8 trillion from world equities since May. The gold ETF has soared 24 percent this year compared with an 8.8 percent drop in the MSCI All-Country World Index of stocks in 45 nations. The Chicago Board Options Exchange Volatility Index, or VIX, jumped 32 percent yesterday, the steepest increase in almost three months.
“The list of problems in Europe is growing faster than the possible solutions,” David Christensen, who oversees $650 million as chief executive officer of ASA Ltd., which invests in mining companies, said in an interview yesterday at Bloomberg headquarters in New York. “That’s adding more fuel toward gold being added as a safe haven. Institutional investors and central banks are all adding gold to their portfolios.”
Demand for calls on the gold ETF, the world’s biggest exchange-traded product backed by precious metals, has surged to the highest level since Aug. 8. That day, the ratio jumped to a one-year high of 1.57 on the first trading session after Standard & Poor’s stripped the U.S. of its AAA credit rating. The ratio has averaged 1.28 in the past year.
VIX Jumps
The Chicago Board Options Exchange Volatility Index reached 36.16 yesterday, rising 32 percent for the biggest gain since Aug. 18. The VIX, as the measure is known, fell 5.5 percent to 34.16 at 11:37 a.m. New York time today. The CBOE Gold ETF Volatility Index, which tracks options on the SPDR fund, jumped 2.2 percent to 29.85 yesterday, above the 26.01 average in its three-year history. It added 0.5 percent to 30 today.
In Europe, the VStoxx Index, which measures the cost of Euro Stoxx 50 Index options, advanced 0.4 percent to 41.90 as of 10:33 a.m. in Frankfurt today.
Traders boosted bets yesterday that U.S. equities will move in unison as a surge in Italian bond yields intensified the credit crisis and concern grew that European leaders may be unable to keep the euro zone intact. The CBOE S&P 500 Implied Correlation Index surged 23 percent to a record 91.54 yesterday.
During yesterday’s rout, one out of 500 stocks in the S&P 500 rose, the fewest since June 29, 2010. The most-active contracts on the measure yesterday were November 1,200 puts, which soared more than fivefold to $16. The index hasn’t closed below 1,200 for a month. S&P 500 put volume jumped to 714,201 contracts, 2.2 times the number of calls.
