Gold rally brings out options bulls

By Saqib Iqbal Ahmed
NEW YORK, Oct 23 (Reuters) - With gold on track for its
second-best month this year, traders in the options market are
betting there is plenty of steam left in the rally.
Spot gold XAU= , which touched a five-year low of $1,077 an
ounce in July, is up about 8 percent from then and broke through
its 200-day moving average last week, the first time since May.
Market watchers attribute the strong bounce in the price of
gold to recent market turmoil and the uncertainty around the
timing of the long-awaited U.S. Federal Reserve interest rate.
Traders have lapped up bullish options contracts on the SPDR
Gold Fund GLD.P , which tracks the performance of the price of
gold bullion. Since the start of August, the gold fund has
attracted inflows of about $950 million.
The demand for call options, that convey the right to buy
the fund's shares at a certain price in the future, is high
compared with the appetite for puts, usually used for more
bearish strategies.
Presently, there are 2.3 calls open for each open put
contract, up significantly from January, when there was just 1.6
call contract open for each open put contract.
Calls on the fund's shares rising above $125 by mid-January,
up about 12 percent from its current level, represent the
biggest block of open interest in the fund's options with 86,000
contracts open.
Data from Commodity Futures Trading Commission last week
showed that speculators raised their net long position in gold
futures by 32,725 contracts to 82,546 contracts, highest since
mid-May. urn:newsml:reuters.com:*:nL1N12G1XK
Since August, the fund has attracted strong inflows.
"All three things are saying the same thing: investor
sentiment is turning more bullish towards gold," said Maneesh
Deshpande, derivatives strategist at Barclays (L:BARC), referring to fund
inflows, demand for calls and the CFTC data.
Deshpande recommended buying three-month call spreads on the
gold fund or the Market Vectors Gold Miners ETF (N:GDX) GDX.P to take
advantage of the rally in gold and the accompanying spike in the
shares of gold miners.
Some of the biggest gold miners, including Goldcorp Inc
GG.N , Barrick Gold Corp ABX.N , and Newmont Mining Corp (N:NEM)
NEM.N , are scheduled to report quarterly results next week.
Some say, however, that not much has changed with the
fundamental outlook for gold.
"It (the rally) certainly could be a bottom-fishing type of
thing," said Bruce Zaro, chief technical strategist at Bolton
Global Asset Management in Boston.
"I think gold will likely remain in the downtrend," Zaro
said.
Goldman Sachs (N:GS) estimates prices at $1,100 in three months,
$1,050 in six months and $1,000 in 12 months. urn:newsml:reuters.com:*:nL3N12N2SN