Are Gold Traders Preparing for Declines?

Gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), the largest exchange traded product backed by holdings of physical gold, finished last week on an upbeat note, but some traders are wagering the yellow metal is in for near-term declines.

The yellow metal and ETFs such as GLD rose late last week amid speculation that the Trump Administration will not be able to execute its widely anticipated tax reform package. Investors eschewed riskier assets on those assets, instead embracing gold.

“One GLD options trader is bracing for steep losses for the malleable metal in the near term, possibly bracing for a sharp retreat following the December Fed meeting,” reports Schaeffer’s Investment Research.

Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. Interest rates remain low in many developed markets and some emerging markets have been rapidly lowering borrowing costs this year.

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Data suggest options traders are betting GLD will decline due to the December Federal Reserve meeting. The Fed is widely expected to raise interest rates next month, the third such move this year. GLD options traders are speculating the ETF could decline to $110 or lower by December expiration.