Sentiment in the gold market is turning increasingly bearish, with signals from the options market indicating that some traders are betting the decline will persist for the next two years.

The SPDR Gold Shares ETF (GLD) fell over 3% again on Wednesday, marking a cumulative 25% decline from its intraday high in February. Data reveals a surge in bearish sentiment in the options market, where trading was dominated by put options. One particularly notable transaction points to an extreme scenario where gold could fall another 40% within two years.

Concentrated Bearish Signals in Options Market

According to data from ThinkOrSwim and SpotGamma, approximately $200 million in premium traded in GLD options on Wednesday, with about $130 million related to put options. Among the top ten contracts by volume, eight were puts. Furthermore, over half of the put option premiums traded at or above the asking price, indicating active buying of these contracts.

The highest-volume put contract was the $380 strike expiring that day, an in-the-money option. The second-highest by volume was a put contract expiring in June 2028 with a $240 strike, priced at $11.50 per contract. This represents a deeply bearish bet, implying the trader expects GLD to fall roughly 40% over the next two years.

Multiple Downward Pressures Converge

Several factors are combining to exert pressure on the gold market. The Central Bank of Turkey is selling gold to support the lira, while Gulf oil-producing nations like Qatar, the UAE, and Saudi Arabia are selling to fund war efforts. Additionally, India has increased its import tariffs on gold. These fundamental headwinds are compounded by technical factors, as the breach of a key support level around $4,400 triggered programmatic stop-loss selling, amplifying the downward momentum.

Potential Structural Opportunity in Mining Stocks

In contrast to the pessimism surrounding physical gold, the options market for the VanEck Gold Miners ETF (GDX) tells a different story. On Wednesday, GDX call option volume was more than double that of put options, and call buying volume was triple that of put buying.

The largest single GDX trade that day involved a trader selling 2,000 at-the-money straddles (simultaneously selling a call and a put) expiring in December 2028, representing roughly $8 million in premium. This strategy profits if GDX remains within a range of approximately $35 to $115 at expiration, reflecting a view that mining stocks will trade in a range over the medium term.

It has been noted that gold mining stocks have significantly underperformed relative to expectations when gold prices surpassed $5,000. However, their cost structure remains attractive. With average mining costs around $1,500 per ounce, profit margins for these companies are still substantial, making an ETF like GDX a potentially more cost-effective way to gain exposure to the precious metals sector.