While the gold market got off to a positive start this year – albeit with some sharp swings – the latest sessions have seen the yellow metal lose some of its luster. Looking at the spot market, gold closed on the midweek session at an average price of $1,958.40, conspicuously below its 50-day moving average (standing at $2,001.49). Notably, the 200 DMA provides support at $1,843.50.

Understandably, gold incurs challenges from a familiar headwind: the Federal Reserve and its broadly hawkish monetary policy. With the central bank wrestling with an inflation rate that skyrocketed once social normalization trends picked up in late 2021 to early 2022, it attempted to curb consumer prices with higher benchmark interest rates. Unfortunately, the unique dynamics of the post-COVID-19 recovery effort sparked unusual trading patterns.

On Wednesday, the dollar came under pressure due to expectations that the Fed will pause its rate-hike campaign at next week’s Federal Open Market Committee (FOMC) meeting next week, wrote Barchart’s Rich Asplund. At the same time, the market saw an uptick in U.S. bond yields, which subsequently saw gold decline by 1%.

Even worse, several gold mining stocks suffered sharp losses on Wednesday. Nevertheless, activity in the derivatives market suggests contrarian investors shouldn’t be too quick to give up on the intrinsically valuable commodity.

Unusual Options Volume Jumps for Gold Stocks

Despite the ugly print in the open market, the options market likely raised more than a few eyebrows. First, New Gold (NGD) – a generally speculative Canadian mining firm with a market capitalization of nearly $785 million – represented a leading highlight on Barchart’s screener for unusual stock options volume.

Specifically, total volume reached 40,086 contracts against an open interest reading of 82,130. Moreover, the delta between the midweek session volume and the trailing one-month average metric came out to 1,721.26%. Intriguingly, the put/call volume pairing dramatically favored the bulls, with call volume hitting 40,083 contracts versus put volume of only 3 contracts. Nevertheless, in the open market, NGD fell 6.5%.

A similar framework impacted B2Gold (BTG), a gold mining owner and operator that has attracted significant retail investor demand. On June 7, BTG stock slipped more than 2%. However, the implications behind its trading dynamics in the derivatives arena symbolized a completely opposite narrative.

Here, options volume reached 106,602 contracts against an open interest reading of 205,058. Further, the delta between the Wednesday session volume and the trailing one-month average metric clocked in at 1,446.3%. For put/call pairing, call volume stood at 106,580 contracts against put volume of only 22.

And again, a familiar tale struck Alamos God (AGI), a diversified North American gold producer. On Wednesday, AGI stock fell 2.54% in the open market. Nevertheless, options traders appeared enthusiastic about its upside prospects.

Total options volume hit 65,519 contracts against an open interest reading of 205,058. In addition, the delta between the day’s volume and the one-month average stat pinged at 1,328.36%. Call volume hit 64,892 contracts against put volume of 627.

I’m missing a few as Iamgold (IAG) and Kinross Gold (KGC) also printed unusual options volume with bullish implications. Naturally, these stats beg the question, why?

Stability Concerns May Cynically Bolster Precious Metals

While gold often receives criticism for just being a dumb commodity that provides no earnings nor (by itself) offers productive value, the implied interest in gold stocks may be a classic case of “do as I do, not as I say.” In other words, it’s better to pay attention to the “real” fundamentals before dismissing the precious metals complex entirely.

Mainly, it’s interesting that right before the regional banking crisis – based on the timeline of events provided by The Wall Street Journal – gold prices slipped sharply. However, as circumstances began to unfold, eventually leading to the quick bank run and failure of two major financial institutions, the yellow metal swiftly saw upside price action.

Put another way, investors fretted about the stability of the U.S. economy and put their money into gold, an asset that has a rich history of providing wealth preservation. So, while mainstream pundits might criticize gold for being a dumb commodity, quite a few smart investors saw wisdom in its safe-haven status.

Moving forward, the inflationary implications behind the better-than-expected jobs report could also fuel price spikes for the yellow metal and rising valuations for gold stocks. Basically, what we have here is that more dollars continue to chase after fewer goods.

And if you want to be really cynical, the U.S. Securities and Exchange Commission (SEC) and its lawsuit against Binance – the world’s largest cryptocurrency exchange – could also lift gold stocks. While blockchain assets offered a digital safe haven for investors, the regulatory agency’s crackdown on crypto could send a chill to contemporary retail investors.

What’s standing tall throughout this mess? Gold. It’s been this way for thousands of years. It may be this way for thousands more.

• Dollar Slightly Lower on Expectations of a Fed Pause
• Stocks Pressured as Bond Yields Rise on Bank of Canada Rate Hike
• Dollar Slightly Higher as Weak Eurozone News Pressures Euro
• Strength in Regional Bank Stocks Leads the Overall Market Higher