Gold & Silver Unusual Option Activity Report

It’s been a tough 2021 for gold and silver hasn’t exactly participated in the broader commodity rally either. Following silver’s one-day Reddit squeeze, it’s failed to generate any bullish follow through. However, as the current rally looks to eclipse the one-year anniversary in March, the market may need to find the “next big thing”. Ultimately, bullishness in gold may signal the end of the current bullish period, but options traders don’t appear to be worried.

Gold Seasonality

Since 2014, gold has typically outperformed from December through January. At times the strength got started early or stayed late, but this year broke that trend. It’s possible that some of the demand was pulled forward as stagflationary concerns ran rampant in 2020, but the growth issues for the economy remain and may even increase in the coming months. With Fed monetization, Federal government spending, and economic laxity, this has historically provided a boost for prices and by extension silver.

I know, many are looking for a larger correction in the market of some magnitude. The options market is certainly with you on that point. Skew is really high and back month volatility is rising. All of this points to concern. However, gold oftentimes leads the market into a correction. One of the “Risk Ratios” that I look at weekly in my Top Down Friday class is gold outperformance of the S&P 500.

As the market is searching for footing and may look to find a top, gold may do well for a period. Looking at Today’s options activity, it certainly appears that more people may be climbing on board that outlook.

Gold & Silver Option Activity

This isn’t the first run that the options market has made in some of the names outlined below. However, the timing of this activity seems to be coming at a time when you would expect gold to start to lead. This is in part because of the rise in Treasury yields last week and the general weakness in technology. Let’s take a closer look at the activity:

• iShares Silver Trust (NYSEARCA: SLV)
  • 11,286 12 MAR 21 $27 calls mostly BOT @ $0.11 to $0.13

• Kinross Gold Corporation (NYSE: KGC)
  • 10,000 21 May 21 $7 call BOT in two prints @ $0.43
  • 10,000 21 MAY 21 $9 call sold in two prints @ $0.14

• Barrick Gold Corp (NYSE: GOLD)
  • 9,975 16 APR 21 $19 calls mostly BOT @ $1.18 to $1.34

The activity on SLV came in right before the rally and the call spread on KGC is looking for it trade above $9. The option activity GOLD isn’t as bullish but fits with these other names.

Conclusion

The above activity in gold stocks and SLV is an indication of bullish interest. Is it well-timed? Time will tell, but the setup for a gold rally in the coming weeks seems to fit the bigger picture of a market peak. Peaks typically form on gold outperformance, a key ingredient missing in the current state.