Someone’s Betting on a Bounce in a big Gold ETF

The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, and the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU), which tracks the USD against a broader basket of developed and emerging market currencies are both heading to May gains of more than 2%.

That should not be good news for gold exchange traded funds, but give the SPDR Gold Shares (NYSEArca: GLD) some credit. The largest ETF backed by physical bullion holdings is up nearly 1.5% this month, an impressive feat considering gold’s often inverse relationship to the dollar. Traders are taking note of GLD’s May strength.

On Thursday, GLD options volume was 3.5 times the daily average, aided by one trader buying 100,000 June $117.5 calls, reports Lawrence Lewitinn for CNBC.

Some market observers argue that the Federal Reserve could push off on tightening its monetary policies. Consequently, without a central bank stepping in, inflation could begin to pick up, increasing gold’s appeal as a better store of value, especially in a low interest rate environment. [Gold ETFs Shine]

A prolonged low-rate environment would support gold prices as a tighter monetary policy typically strengthens the U.S. dollar and keeps inflationary pressures in check.

Gold has also been strengthening after the U.S. dollar depreciated against a basket of foreign currencies – consumers and investors are able to acquire more USD-denominated gold for less if the dollar currency weakens. [Gold ETFs Look for More After Recent Rally]