Gold bugs spend $180 million betting all's clear for metal as bond yields stall

Gold bugs, staunch supporters of the precious metal, are finding it difficult to abandon their belief in gold's potential despite its 25% decline from its January high. Following a two-month period of relatively static prices, gold experienced a rally on Friday as investors reacted to weak job data. The surge in bullish call options positions, with nearly $100 million being bought for the SPDR Gold Shares (GLD) ETF, outpaced the $25 million spent on put options.

This trend was mirrored in the mining sector, with over $80 million invested in GDX calls and only $9 million in put options. Options activity in both assets surged, with GLD nearing double its 30-day average and GDX quadrupling its usual trading volume.

The dramatic 100% year-long rally in gold prices through January gave way to a reversal this year, as Treasury yields and the dollar strengthened in the first half of the year. The bull market in tech stocks also siphoned investor funds from other areas. The aggressive buying of calls hints that gold bulls anticipate a potential shift in regime. The 10-year yield, which had reached 4.7%, has recently plateaued, stabilizing below multi-year highs, while the dollar has weakened to its lowest level since mid-June.

Despite concerns about potential interest-rate hikes by the new Federal Reserve chair, Kevin Warsh, a lackluster U.S. jobs report on Friday may have further bolstered the case for doves. Nonfarm payrolls unexpectedly dropped by 23,000 in July, with an additional 53,000 government jobs lost. Analysts suggest that the move off the gold lows could be attributed to aggressive buying by Chinese individual investors in domestic gold ETFs, driven by Beijing's efforts to restrict capital outflows.