Buy Gold: Traders Bet on New Records. Social Media Experts Lying in Wait

Traders are betting MUCH higher prices are just around the corner. 

It’s only a matter of time before everyone on social media is a gold expert. We say this ironically, but not really. From ChatGPT to countless social media accounts claiming expertise on every topic. 

This can be you on Facebook and X! Let’s get out in front of the crowd.

If trading gold were only this easy. 

How much higher can it go, and how soon?

Earlier this year, we showed how large out-of-the-money call buying was an early indicator of the potential explosiveness of cocoa and robusta coffee futures. A fundamental story (weather) lined up with outsized option bets.

Robusta futures traded a new record high shortly after.

The gold situation is shaping up similarly. First, here’s what the options are saying.

The call-to-put ratio is a standard metric showing interest in bullish bets (calls) versus bearish bets (puts). Commodities are prone to sharp price changes when the ratio gets heavily skewed at a strike or expiration.

The call-to-put ratio favors calls by 237% in December, with the most actively traded strike at $3,000. This implies traders expect gold to trade above $3,000 before the end of the year. 

The ratios are even more extreme in 2025. The call-to-put ratios for the March and December expirations are 333% and 5,000%, respectively. December open interest shows more than 34,000 of the 35,000 options traders own are calls.

The red circles show extreme positioning.

A good rule of thumb is that purchases in less actively traded options are a directional opinion. This is not always the case in more liquid contracts where companies hedge business activity, and speculators spread positions against other commodities or bet on volatility. 

A phenomenon the retail crowd is coming to understand is gamma. Gamma quickly explained, is the changing likelihood that an option will expire more valuable. The owner of a call will make more money if the price goes higher faster. If the option stops going up or goes up too slowly, then the option will lose value. The real-time change in the value of that option is gamma.

The call sellers (market makers) will be forced to buy futures as prices rise, but they may need to buy many more if prices shoot up. Therefore, gamma is critical for how option buyers and sellers make money and manage risk exposure. 

The Gamestop saga taught retail traders how the longs could squeeze short-sellers in equities. The same is true for commodities and options. Traders are making massive, directional bets that gold will trade above $3,000 before the end of the year and higher in 2025. 

The stock crashed after Robinhood (ironic name?) restricted trading. 

The pro-gold fundamental arguments. 

Let’s revisit the famous yield argument. Gold becomes more attractive when bonds or other fixed-income products offer lower yields. Gold underperforms alternative asset classes when rates are high because it yields nothing. An asset yielding 6% will double every twelve years. 

This happened post-pandemic(sort of) when the Fed began its aggressive rate hikes. Gold ETFs experienced outflows from 2021 through 2023. Gold prices still rallied because central banks and physical buyers picked up the slack due to the rising risk of debt-fueled debasement—more on both below.  

Central banks have become big buyers of gold. In 2023, global central banks purchased just over 1,000 tonnes or roughly one-third of that year’s total production. China was the largest buyer at 314 tonnes. It was not just the BRICS that bought it; Poland bought 130 tonnes. 

A combination of all: stability, inflation hedge, diversification, etc. 

The purchases continued in 2024 as central banks bought another 290 tonnes during the first quarter. India’s August purchases alone may have topped 140 tonnes and $10 billion. Surveys show that central banks expect to continue purchasing in the foreseeable future. 

The fundamentals that drive central bank buying.

Slowing inflation has relieved some pressure on central banks to keep rates high and reverse course to address slowing global growth. Economists are coming around to the fact that America is finding it challenging to calculate employment trends in the new-gig, immigration-driven economy. 

China’s unwillingness to provide stimulus while growing export market share encourages protectionist measures from trade partners. Canada was the latest to implement 100% tariffs on EVs, and Beijiing is lobbying Europe not to follow suit. 

China's auto exports have gone from 0 to 5 million in 5 years.

Tariffs push up debt levels as governments subsidize domestic industries and the world reverses three decades of globalization. Governments are going to spend more money addressing labor and growth challenges simultaneously.

Another tactic will be weakening the currency to support export competitiveness. Many are calling for a weaker dollar, which could fuel the proverbial “race to the bottom.” Foreign central banks are uneasy that the US government may, in fact, actively work to weaken the Greenback. Trump has already threatened countries that look for dollar alternatives.

It is entirely unclear how this would be implemented. 

Global debt in 2023 reached over $300 trillion, with the majority coming from the developed economies. The worst offenders are the USA, Japan, the UK, and France.  The US alone is at nearly $90 trillion of total debt, and debt to GDP will approach the critical 130% mark in the next few years. The US's ability to borrow far surpasses that of other economies, so a debt crisis may happen in the UK or France first. Either way, the growing debt issues will force difficult choices on governments that have shown no fiscal discipline.

The US elections and the wars in Ukraine and the Middle East are two other considerations. Kamala appears likely to raise taxes, but social spending will offset this. Trump wants to cut taxes and implement protectionist measures.

Deficit spending under the previous Trump administration began almost as soon as he took office. Tax cuts did not pay for themselves, especially when America’s technology and pharmaceutical companies are already based in foreign tax shelters. 

Brad's excellent work shows how the US current account, FDI, and foreign tax shelters of US companies affect this. I suggest reading the whole thread and the accompanying ones.

Both wars may be nearing critical tipping points, and other conflicts are percolating. Israel’s expansion into Lebanon will bring other actors into the mix. Saudi Arabia recently reversed its position that there will be no agreement without a Palestinian state. Ukraine’s ability to strike strategic targets deep inside Russian territory has raised the stakes. How will Putin respond? 

Growing regional tensions in Latin America, the Korean Peninsula, and the Taiwan Strait could boil over in 2025. Gold will keep risk premia as a hedge against geopolitical instability. Financial advisors will suggest gold as a strategic allocation for portfolios.

Expect the social media experts to remind you often, “You can’t own enough when you need it.” 

While this is undoubtedly true, gold has a history of getting overbought and encouraging exuberance at the top. Stay disciplined in an uncertain world. Register for our free weekly weather and global production updates here.

Every asset requires different due diligence. Bitcoin will remain far more volatile than gold, and other crypto tokens are still prone to bad actors. Each asset requires its own due diligence. 

ArchaiQ (AiQ) is a partner of Easy Newz. This is not trading or investment advice. Trading Futures is high-risk; please consult with a professional.