The so-called "gold bugs" haven't abandoned their positions despite the metal's recent pullback. Gold prices have fallen roughly 25% from their January highs, but after nearly two months of sideways consolidation, weak U.S. employment data on Friday triggered a rebound, reigniting investor bets on a gold rally.
Options market data shows gold investors are rapidly adding bullish positions. According to SpotGamma, on Friday, the volume of call options bought on the SPDR Gold Trust ETF (GLD) approached $100 million, compared to put option purchases of roughly $25 million. Meanwhile, for the GDX ETF, which tracks gold mining stocks, call option purchases exceeded $80 million, while put options were bought for just over $9 million.
Chicago Board Options Exchange LiveVol data indicates that options trading volumes for both GLD and GDX have surged significantly. GLD volume is estimated to be double its 30-day average, while GDX volume reached roughly four times its typical daily trading level.
A weaker U.S. dollar and a pause in the bond yield rally are providing fresh support for gold. Gold had previously experienced a strong run, gaining about 100% in the year through January. Subsequently, rising U.S. Treasury yields, a stronger dollar, and a global shift of capital into the tech stock boom caused a correction. The market environment is now beginning to shift. The 10-year U.S. Treasury yield, after climbing to 4.7%, paused its advance last week, stabilizing below multi-year highs, while the U.S. dollar index fell to its lowest level since mid-June.
Gold typically moves inversely to real interest rates. When bond yields fall or the dollar weakens, the appeal of gold as a non-yielding asset often increases. The aggressive buying of call options reflects a belief among some gold bulls that market conditions are turning. Friday's U.S. employment data further reinforced this expectation. July non-farm payrolls unexpectedly fell, with total U.S. employment declining by 23,000 jobs, driven by a loss of 53,000 government positions. The weak report is seen by the market as supporting a dovish stance within the Federal Reserve, even as speculation about a potential rate hike from newly appointed Fed Chair Kevin Warsh persists. The non-farm report pushed gold's weekly gain to over 7%, its largest in six months.
Chinese investors buying gold ETFs are being cited as a recent catalyst for the rally. The recent rebound in gold prices is not only influenced by changing U.S. interest rate expectations but may also be driven by overseas capital. Nigam Arora, founder of the Arora Report, stated that large-scale buying of domestic gold ETFs by Chinese investors is a key factor fueling the recent rebound. "The trigger for the bounce from the lows a few days ago was the extremely aggressive buying of domestic gold ETFs by Chinese retail investors," Arora said. Last week, gold-backed ETFs listed in China saw increased inflows, extending the longest streak of inflows since March, which further amplified gold's strength.
With the dollar weakening, long-term bond yields pausing their rise, and the market reassessing the Federal Reserve's policy path, gold bulls are repositioning. In recent weeks, gold has held above the key support level of $4,000 per ounce, and bargain hunters have increased since the metal entered a bear market in June due to geopolitical tensions. According to the latest data from the Commodity Futures Trading Commission (CFTC) for the week ending August 4, hedge funds and money managers increased their bullish bets on gold, pushing net bullish positions to their highest level in over six months. Institutional investors view the current price as an attractive entry point, and gold's ability to hold the $4,000 per ounce level has boosted confidence. However, the significant run-up and subsequent correction also mean that investors are waiting for a new macro catalyst to determine if the next leg of the rally can be sustained.