Gold is trapped in a dilemma of "the more chaotic, the more it falls"! The options market bets that the cold winter of gold prices will last for two years.

With the new round of attacks by the United States on Iran putting additional pressure on the fragile ceasefire agreement and potentially prolonging the disruptive Middle East conflict that is impacting the global financial markets, the downward trend of gold continues to play out. Some traders are even betting on further declines in gold prices, with the possibility of the pain lasting for around two more years. The sell-off of this precious metal is only getting worse, with the world's largest gold ETF - the gold ETF with the stock market code GLD - currently experiencing a significant 25% drop from its record high price set in February. Options traders focusing on this fund are still heavily leaning towards bearish positions, indicating a further significant downward trajectory. With the US military announcing "defensive" strikes on multiple targets within Iran, and Iran declaring the closure of the Strait of Hormuz from today to all types of ships, including oil tankers and commercial vessels, any ship attempting to pass through the strait will be attacked. This series of dynamic news without a doubt will ignite expectations of a Fed rate hike, further drive US inflation expectations, and push the 10-year US Treasury bond yield - also known as the "anchor of global asset pricing" - higher, leading to continued heavy losses for gold. During the early trading hours of Thursday in Asia, gold futures and spot prices have been falling for three consecutive days. Spot gold fell by 0.9% in early trading to around $4,036 per ounce, after dropping by 4.4% the previous trading day. This highlights the growing impatience of the Trump administration as negotiations between the two parties fail to reach an agreement, and the latest escalation of conflict could prolong the Iranian war that is disrupting global markets and sparking inflation concerns. The downward trend of gold continues? Options market bets on a prolonged winter of two years Even though the price of the gold ETF with the code GLD fell by 3% on Wednesday, options traders sold more bullish options than they bought; according to data from ThinkOrSwim and SpotGamma, out of the $200 million in option premiums traded, $130 million was related to bearish options. In the top 10 contracts by volume, 8 are bearish options, and more than half of the bearish options were traded at or above the ask price, indicating that these contracts were mostly bought. Currently, the most heavily traded bearish options contract for GLD is the in-the-money contract expiring today with a strike price of $380. The second most popular is a put option with an expiration date in June 2028 and a strike price of only $240 - each contract is priced at $11.50, representing a deep bearish bet that the price of the gold ETF will fall by 40% in the next two years. Nigam Arora, the founder of the Arora Report, stated in a phone interview: "The Turkish Central Bank is selling gold and buying dollars in an effort to support the lira; Gulf countries - Qatar, the UAE, Saudi Arabia - need massive funds for war, so they may have also been selling liquid gold." "At the same time, the Indian government has significantly increased gold tariffs, and anyone solely looking at technical charts has set their stop loss levels below $4,400; once this level is breached, they will have to begin selling." Currently, the price of gold is over 20% lower than the trading price before the outbreak of the Iran war at the end of February. Gold recently breached the 200-day moving average (a widely watched long-term technical trend indicator), causing more selling pressure as institutional investors view this line as an important level. Information from some gold mining companies may offer a glimmer of hope. In GDX (an ETF tracking the largest gold mining companies globally), the volume of call options on Wednesday exceeded put options by more than twice as much, with the number of call options bought being three times higher than put options. The largest single trade in the ETF that day involved selling 2,000 at-the-money put and call options expiring in December 2028, creating a bearish straddle position worth close to $8 million; if GDX remains between around $35 and $115 at expiration, this position will generate substantial profits. Arora commented: "Gold mining stocks have never risen to the levels they should have reached when gold was over $5,000." "So if you're looking to invest in precious metals, GDX is a better value choice, because if their average cost is around $1,500, then their profits are quite substantial." The Middle East conflict turning into an inflation shock has left gold in a predicament of "the more chaos, the more decline" Gold prices seem unlikely to break free from their sluggish state in the short term, primarily due to the fact that the current round of Middle East geopolitical risks are not simply being interpreted by the market as "safe-haven buying of gold," but rather as a macroeconomic chain reaction of "oil price increases - rising inflation expectations - betting on a Fed rate hike - expectations of rising real interest rates and a stronger dollar." The dominant pressure on gold is not inadequate scale of geopolitical panic buying, but rather the geopolitical conflict pushing up energy prices, therefore enhancing the "opportunity cost of holding non-yielding assets." As tensions escalate between the US and Iran, spot gold fell by nearly 5% on June 10, dropping to its lowest level since March, as rising oil prices intensified concerns about inflation and future rate hikes. Pricing data from the interest rate swap market shows that market participants are pricing in a 100% chance that the Fed will restart rate hikes in December, aligning with the hawkish bets of bond traders. The CME Fed Watch Tool similarly shows that traders are unanimously betting on a Fed rate hike in December, and some traders are even betting on the Fed beginning the rate hike process in October. Short-term technical indicators and derivative market sentiment for gold are also weak. GLD has fallen by 25% from its record high in February, with $130 million out of the $200 million in option premiums traded being related to bearish options, and 8 out of the top ten contracts being bearish options. In particular, the put options expiring in June 2028 with a strike price of $240 became the second most popular contract, indicating that some traders are betting on further significant downward movement in the next two years. While these extreme bearish option trades do not directly equate to market benchmark forecasts, they do reflect that the bullish defenses of gold are being continuously breached: on the one hand, the narrative of central banks in Turkey and Gulf countries selling gold to buy dollars or fund their fiscal/war expenses is suppressing physical gold demand; on the other hand, India's increased gold tariffs, the breach of key technical levels by spot gold and GLD prices, triggering stop losses, is also exacerbating the trend-driven selling pressure. Typically, an escalation of war would enhance the safe-haven properties of gold; but in the current environment where core US CPI remains under control and overall CPI is being pushed higher by energy prices, the market is more concerned about "stagflationary oil price shocks" rather than simple safe-haven buying. Therefore, the traditional safe-haven premium of gold is being offset by higher real interest rates, a stronger dollar, and rate hike expectations. A recent research report from the European financial institution ING pointed out that geopolitical factors alone are insufficient to drive a sustained rise in gold prices, as rising US Treasury yields, a stronger dollar, and expectations of the Fed benchmark rate hike continue to be key macro variables suppressing gold price increases.