Gold Calls At 2008-High On Easing Bets For Jackson Hole

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Aug. 29 (Bloomberg) — Options traders are boosting bullish wagers on gold to an almost four-year high, betting U.S. Federal Reserve Chairman Ben S. Bernanke will hint at additional stimulus measures at the Jackson Hole, Wyoming, symposium.The ratio of outstanding calls to buy the SPDR Gold Trust versus puts to sell jumped to 2.69-to-1 on Aug. 24 and reached 2.76 earlier this month, the highest level since October 2008, according to data compiled by Bloomberg. The exchange-traded fund has risen 3.7 per cent this year to $161.64 amid increased demand for the metal as a hedge against inflation.

The biggest drop in U.S. consumer confidence in 10 months and a slowing economic expansion are helping fuel speculation that the Fed will step up measures to stimulate growth. Bernanke’s speech at the 2010 Jackson Hole conference set the stage for a second round of large-scale asset purchases, which helped drive the Standard & Poor’s 500 Index to rally 26 per cent through the end of June 2011.

“There’s an extremely high likelihood of another announcement of quantitative easing in the next Fed meeting, with the most likely scenario being that Bernanke will take one step further in his Jackson Hole, Wyoming, testimony,” Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee more than $1 billion of assets, said in a phone interview yesterday. “Gold has taken on a more serious tone as of late because of not only our central bank, but central banks around the world, creating liquidity to stimulate economic growth.”


Jackson Hole

Bernanke is set to deliver a speech on monetary policy to central bankers and economists Aug. 31 at the Kansas City Fed’s symposium in Jackson Hole. In Europe, European Central Bank President Mario Draghi pledged last month that policy makers will do whatever is needed to preserve the euro, and the People’s Bank of China has cut the reserve requirement for mainland lenders three times since November.

Another round of asset purchases by the Fed may stoke concern that the dollar will weaken and inflation will accelerate, making gold an attractive hedge. The U.S. consumer- price index was unchanged in July, according to an Aug. 15 labour Department report. The cost of living has climbed 1.4 per cent over the past 12 months, the smallest year-to-year increase since November 2010.

Gold dropped the most in two weeks yesterday on speculation that the Fed will delay announcing stimulus measures. Futures for December delivery fell 0.4 per cent to settle at $1,669.70 an ounce in New York.


Bullish Bets

Options traders have been boosting bets on rising gold prices. Ownership of calls on the gold fund rose 26 per cent since the July 20 options expiration to 2.8 million on Aug. 24, according to data compiled by Bloomberg. During that time, put open interest gained 4.8 per cent to 1.04 million. Investors have also increased bullish wagers on the iShares Silver Trust, sending the call-to-put ratio for outstanding options to 2.15- to-1 on Aug. 17, a two-year high, the data show.

Fed policy makers said they are prepared to provide new stimulus “fairly soon” unless they’re convinced the economy is poised to rebound, according to the minutes of the Federal Open Market Committee’s July 31-Aug. 1 meeting released last week.

Signs of strength in economic data may reduce the need for more easing. The U.S. economy generated more jobs than forecast last month and retail sales rose 0.8 per cent in July, the biggest increase since February, the Commerce Department said Aug. 14.


Improving Economy

“What the Fed told us in August was, if growth didn’t improve, then they would do more,” Dean Maki, chief U.S. economist at Barclays Plc, said in an Aug. 24 Bloomberg Television interview. “But growth is improving in our view.”

The Chicago Board Options Exchange Gold ETF Volatility Index, which measures the cost of options on the fund tracking the metal, dropped 2.1 per cent to 16.54 yesterday. The benchmark gauge of U.S. equity options known as the VIX rose 0.9 per cent to 16.49. Europe’s VStoxx Index, a measure of Euro Stoxx 50 Index option prices, climbed 4.3 per cent to 25.94 at 9:59 a.m. in Frankfurt today.

The price of bullish contracts on the gold ETF has risen to a six-month high. Calls betting on a 10 per cent rally in the fund had an implied volatility, the key gauge of options prices, of 18.73 yesterday, according to three-month data compiled by Bloomberg. That’s more than the value of 18.39 for puts that pay should the ETF lose 10 per cent. The ratio of the two implied volatilities rose to 1.04 on Aug. 22, its highest level since February.


Open Interest

Among the 30 most-owned contracts on the ETF, 28 were bullish. September $160 calls and December $195 calls, with an exercise price 21 per cent above yesterday’s close, had the largest open interest among all contracts, the data show. The September contracts expire on Sept. 21.

“After the last FOMC minutes, what became clear isn’t that the economy has to get worse to have the quantitative easing, it’s if it doesn’t get better, and I just don’t see any indication of that,” Nick Sargen, a former Fed economist and chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a Bloomberg Television interview on Aug. 24. The firm oversees about $40 billion.

–With assistance from Nicholas Larkin in London. Editors: Lynn Thomasson, Michael P. Regan


To contact the reporters on this story: Cecile Vannucci in Amsterdam at [email protected]; Jeff Kearns in Washington at [email protected]


To contact the editors responsible for this story: Lynn Thomasson at [email protected]; Andrew Rummer at [email protected]; Chris Wellisz at [email protected]

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