Gold Prices Are Headed for New Highs Amid Unrest. What Investors Should Do.


Visit: Barron's

As America burns, gold shines.

The traditional feel-good asset in times of economic duress is nearing a 52-week high as protests continue to erupt across the nation in response to the recent death of George Floyd while he was in police custody in Minneapolis.

Ever since, protesters have taken to the streets in major cities, including New York, Chicago, Portland, and even outside the White House in Washington, D.C. And in some cases, the gatherings have turned violent.

So far, the financial markets have mostly shrugged off the protests. Major stock indexes are still advancing, but there are emerging signs in gold trading, and even with the Cboe Volatility Index, or VIX, that some investors are preparing for more difficult days.

The SPDR Gold Shares (ticker: GLD) exchange-traded fund was recently around $163.66. During the past 52 weeks, the ETF has ranged from $123.90 to $164.96. The fear gauge, as VIX is widely known, normally moves in the opposite direction of the stock market but has stayed at elevated levels even as stock prices advance. The unusual VIX movement suggests that investors are buying defensive puts to hedge against a decline in stock prices.

In the options market, investors have amassed GLD ETF call positions in September 2020, likely positioning for volatility to tick higher in one of the most tumultuous months of the trading year. Major stock market corrections have occurred in October, and that makes September a month of psychological dread and whippy trading.

A few weeks ago, an investor bought 10,000 GLD September $180 calls and sold 20,000 September $200 calls. The “ratio spread”—this entails selling more calls than are bought—suggests the investor is positioning for the ETF to soon rally to $200.

Such a move would certainly be extraordinary in such a short time. If it occurred, the ETF would be trading at the highest price in about 12 years.

Investors who are intrigued by the dour trade can consider a more conservative strategy.

With GLD at $163.66, the September $165 call could be bought at $6. If GLD is above $171, the call purchase begins to generate profits. At $180, for example, the call is worth $15.

To be sure, GLD is always a strange creature to trade. Most equities normally evidence a bullish or bearish bias in the options market. This means that bullish calls or bearish puts are usually more expensive, reflecting investor demand. But GLD’s options tend to always indicate a bullish bias and a bearish bias. The peculiarity reflects the always passionate debate about the true value of gold. In some ways, the polemics are ultimately academic.

We know investors are concerned about the global economy, civil unrest, and the future of monetary policy. All of that leads them to gold, which should bode well for anyone who is positioned into the historically volatile fall trading months.

Originally Posted on June 2, 2020 – Gold Prices Are Headed for New Highs Amid Unrest. What Investors Should Do.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Barron's and is being posted with permission from Barron's. The views expressed in this material are solely those of the author and/or Barron's and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. For more information read the Characteristics and Risks of Standardized Options, also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or copy and paste this link into your browser:

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at