Gold's biggest plunge in decades is being compounded by trading in the options market. Bullion fell more than 12% on Friday while silver posted its biggest intraday decline on record as a selloff swept through the broader metals market.
A so-called gamma squeeze may be adding to gold's retreat. That's where dealers that are short options need to buy more futures — or shares, in the case of the gold exchange-traded funds — as prices rise and sell when they fall in order to keep their portfolios balanced.
“It very well could be a gamma squeeze from dealer hedges,” said Aakash Doshi, global head of gold/metals strategy at State Street Investment Management. “Clearly, investors got long and bid up near dated options over the past few weeks. As the topside spot price momentum accelerated, it is very likely dealer hedges pushed the price upwards, causing a parabolic price spike.”
He said some of that may be unwinding going into month end and following Friday's announcement that Donald Trump nominated Kevin Warsh as next chair of the Federal Reserve.
The SPDR Gold Shares ETF had large positions expiring Friday at $465 and $455, while on Comex, sizable March and April options positions were at $5,300, $5,200 and $5,100.
While technical indicators point to potential further weakness in gold prices, it'll be a buying opportunity “given the structural and tactical dynamics that still favor gold allocations in 2026,” Doshi said.
Options traders aren't totally fleeing the market. One-month implied volatility on SPDR Gold Shares and iShares Silver Trust are holding at elevated levels.
Notably, despite the sharp selloff in gold today, bullish positioning has actually increased in the options market, with the SPDR Gold Shares skew becoming more inverted as investors piled into calls to play for a rebound, according to Mandy Xu, head of derivatives market intelligence at Cboe Global Markets Inc.
On Comex, almost 1,500 December 15,000/20,000 call spreads traded, after 5,500 lots swapped hands earlier in the week. Also, on the SPDR Gold Shares a Jan. 2027 $500/$335 1x3 put spread traded 13,000 x 39,000 lots, possibly positioning for a longer-term decline.
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