Share
As you know I am one of that school who thinks that the price of gold is determined by those four or five thousand anonymous individuals who day trade the COMEX gold futures contract. Figuring out what four or five thousand anonymous individuals are thinking at any point in time can difficult so I spend some time on Sunday evening scratching around the edges looking for secondary indicators that might indicate which way they were leaning. An old favourite is the shape of the volatility "smile" (- a graph of volatility across a range from out of the money Puts to out of the money Calls.)
So I took the closing option prices for Friday for a number of strikes and calculated the implied volatility (using the Black and Scholes model). The table below shows the results:
I had hoped for something a bit more interesting. An obvious skew up in either direction would have indicated traders lining up for the next move. But it just isn't there. (An 0.2% difference between out of the money Puts and Calls isn't really significant.)
This is a reasonably symmetrical volatility smile which suggests that the interest between bulls and bears is fairly even. The low open interest also suggests a certain lack of urgency. This is consistent with the range bound market we have been living with since April.
I think that anyone intending to buy or sell gold during the next three months doesn't really have to hurry.
What are we going to talk about?
