A Mysterious Trader is Betting Millions on a Volatility Spike

Cassie Bastien

3/31/2017 11:53:57 AM

Daily Gold & Silver Market Report – 03/31/2017

CNBC reports there is an investor, also known as “50 cent” who has lost around $75 million betting on a volatility spike in the market, is wanting to do it again! Macro Risk Advisors Head of Risk Strategy Pravit Chintawongvanich said, "I would categorize them as someone who doesn't flinch at losing money.” Reporter Alex Rosenberg said, “The money-losing trades in question have been purchases of call options on the CBOE volatility index, [which] represent bets that market volatility is set to rise, and to a lesser extent, that stocks are set to fall.” Chintawongvanich explained Wednesday on CNBC's ‘Trading Nation’, “In other words, they don't care too much what the strike is; they just pick the option that's worth 50 cents.” In total, Rosenburg reports, “The party that has become known as "50 Cent" after its favorite purchase price has spent about $90 million, and has already seen $55 million worth of purchased options expire worthless.” Rosenberg stated if this does not exactly pan out, the rewards could still be sweet. “The big purchases of calls may simply be the most dramatic part of a big asset manager's comprehensive plan to cheaply protect itself from a market crisis. Or it may represent part of a fund's outright bet on a particular sort of volatility environment.” Although it is impossible to know for sure what could happen, Rosenberg said it's “worth noting that tracking down 50 Cent's motives may provide little in the way of useful information.”

Gold Prices Edge Higher in 2017

GFMS analysts at Thomson Reuters and reporter Jan Harvey with Reuters.com said, that spot Gold prices will in fact “edge higher this year ...as jitters over the U.S. and European political backdrop drive investors to bullion.” Harvey says those purchasing Precious Metals such as Gold to use as a safe haven plus “a recovery in Indian buying, are likely to push prices to an average $1,259 [per ounce] an ounce this year.” A GFMS analyst said, “As the year progresses...safe haven flows become increasingly likely, assisted by either U.S. or European politics or a combination thereof.” The question remains whether or not U.S. equities have gone too far in the markets which could cause spot Gold prices to benefit from risk aversion.

• GFMS said the physical Gold market surplus swelled to a seven-year high of 952 tons last year.
• Total physical demand fell 18 percent to 3,559 tons in 2016, largely due to sharply lower jewelry fabrication.
• Of the two biggest physical gold markets, Indian jewelry fabrication fell 38 percent, due in part to the introduction of excise duty on jewelry manufacturing, while Chinese fabrication slid 17 percent (Reuters.com).

Outlook for Silver Prices Appears Strong

Spot Silver prices were slightly impacted Thursday with the upcoming speeches by Federal Reserve officials and the U.S. dollar gaining some momentum. Alexander Gorodezky with Economic Calendar said, “The USD Index increased to nearly the highest level in the last two weeks, which is currently standing around 100.50, up almost 0.9 percent this week.” However, many analysts expect Silver prices to rebound in upcoming days due to the dovish Fed interest rate outlook. Furthermore, an expected growth in U.S. manufacturing, industrial and infrastructure activities could also drive the demand for Silver. “Although past performance isn’t the guarantee for successful future,” Gorodezky said, “if Silver extended its current momentum, it could rally more than 60 percent this year.”

• Silver soared almost 13 percent since the start of this year, beating gold and the S&P 500 (EconomicCalendar.com).

At 12:54 p.m. (ET), the APMEX Precious Metals spot prices were:

• Gold, $1,250.80 Up $2.50
• Silver, $18.33 Up $0.04
• Platinum, $951.30 Down $3.40
• Palladium, $800.10 Up $0.70

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