Epic signal! The gold "Fear Index" soars to financial crisis levels, and Wall Street options hunting has quietly shifted focus to $BTC?

Gold prices experienced a sharp decline last Friday and Monday, levels not seen in years. The market widely blames Kevin Waugh, the nominated new Fed Chair, believing his potential hawkish policies could weaken gold’s appeal.

But the truth may lie more with trading desks than the White House. One view suggests that the complex mechanisms of the options market are distorting gold’s role as a traditional safe-haven asset.

The key clue is hidden in the Chicago Options Exchange’s Gold Volatility Index. This index measures the expected price volatility of gold over the next thirty days, based on options prices of the SPDR Gold Trust ETF, recently closing above 44.

This number is a warning sign. Historically, such high levels have only appeared during the 2008 global financial crisis and the market crash triggered by the 2020 pandemic.

In theory, options should reflect and follow the spot price. However, over the past year, investors have bought massive amounts of gold ETF call options while also betting on rising silver trust fund prices.

Banks acting as counterparties thus bear the risk of falling prices. To hedge, they typically buy corresponding gold futures or ETF shares.

This structure creates a fragile balance. Small market fluctuations can trigger chain reactions: options traders rush to adjust positions, while hedging banks are forced to sell, creating a snowballing selling pressure.

This feedback loop driven by derivatives is not new in financial markets. It recalls the “Gamma squeeze” of GameStop stocks in 2021 and the “volatility death spiral” that caused the S&P 500 to plunge in 2018.

The US stock market is accustomed to such capital flows. Data shows that the daily nominal trading volume of US blue-chip stock options has surged from about $500 billion in 2020 to nearly $3.5 trillion in 2025.

Strong evidence suggests the same forces are now at work in the precious metals market, with options trading volume also rising in tandem. Last week’s gold volatility index reaching 44 is a new high, compared to gold’s actual volatility and the S&P 500’s implied volatility, both setting records.

Another anomaly is that implied volatility started rising before gold prices actually plunged, without corresponding losses in the underlying asset. This often indicates that aggressive buying of call options is a major driver behind the move.

From the heavily options-influenced stock markets, gold investors can learn a key lesson: sell-offs driven by such market-structure distortions are often short-lived.

Historical data supports this view. Analysis shows that once gold’s implied volatility breaks above 40%, the price tends to rise an average of 10% over the next three months. Of course, given the previous gains in gold, this time the path may not fully replicate history.

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