Gold has outperformed major asset classes this month as President Donald Trump’s tariff actions reshaped global markets and pushed investors toward safer assets.
However, market strategists are warning that the precious metal may be running ahead of its fundamentals.
As bullion prices hit record highs last week, options trading on the SPDR Gold Shares ETF surged past 1.3 million contracts to set a new record. Despite this bullish activity, the cost of hedging against declines sits near its lowest level since August while implied volatility has increased sharply.
Analysts view this combination as unusual and a potential warning sign.
Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence, noted that gold and bitcoin have shown similar trading patterns in recent years, characterized by rising spot prices and increasing volatility.
Sandhu pointed out that call demand for gold has surged while implied volatility has balanced out across strike prices following the recent correction.
Gold has already fallen more than 5 percent from its intraday peak last week following indications that trade tensions could be easing.
Concurrently, hedge fund managers have reduced their net long futures and options positions to the lowest levels in over a year, according to the latest Commodity Futures Trading Commission data.
The recent risk-off sentiment has strengthened gold’s relative performance compared to US Treasuries and equities. However, Barclays strategists argue that gold’s rally is moving faster than underlying fundamentals can justify.
In a note last week, Barclays stated that the current pace of central bank gold purchases remains within historical norms and does not fully support the sharp price gains.
The broader thesis around de-dollarization and the end of US exceptionalism has bolstered gold demand but has also brought speculative pressures.
Barclays strategist Stefano Pascale highlighted that call options on the SPDR Gold Shares ETF soared following Trump’s “Liberation Day” announcement creating an inversion of skew.
This inversion along with declining hedge fund interest suggests caution is warranted.
“We think that gold is going to come down” Pascale said in an interview. “The commodity is dislocated with respect to its fundamental drivers of the US dollar and real rates. Technicals are starting to be a little bit stretched.”
Garrett DeSimone head quantitative analyst at OptionMetrics sees some similarities between gold and bitcoin noting that both assets could still rally as implied volatility and skew remain within historical ranges.
He added that from the options market perspective upside and downside risks are relatively balanced.
Despite signs of caution, Barclays proprietary indicator shows sentiment on gold remains bullish. As a strategic move Barclays recommends a zero-cost risk reversal by selling June calls and buying puts betting that gold prices will retreat in the near term.
Market watchers will continue to assess whether gold’s rally has staying power or if the combination of technical factors and positioning shifts will trigger a broader pullback.
