Gamma effects cause significant fluctuations in the Gold market

Gold markets experienced a significant price drop on Friday, which analysts linked to the manifestation of the gamma effect. This financial phenomenon is closely related to options market dynamics and can trigger unpredictable market fluctuations. A PANews report reveals that price movements through critical options strike levels caused a chain reaction in traders’ positions.

How gamma squeezing affects options traders

The gamma effect occurs when market prices move through significant options levels. Traders holding short options positions are forced to react quickly—they must rebalance their instruments to maintain exposure. When prices rise through these critical points, traders are compelled to buy additional futures contracts or ETF shares. Conversely, when prices fall, they have to sell. This cyclical dynamic can accelerate price movements in either direction.

Large options and futures positions in CME and ETF markets

In the SPDR Gold ETF markets, options contracts with strike prices of $465 and $455, which formed potential price decline points, were active at the end of Friday. Simultaneously, the CME Group futures markets held significant accumulated positions at key levels of $5,300, $5,200, and $5,100 for March and April. These concentrated positions create gamma squeezes in the market, where small price increases or decreases can trigger proportionally larger waves of selling or buying by traders.

The impact of the gamma effect on gold price dynamics seriously threatens traditional market behavior, as it is no longer controlled solely by fundamental factors but by a complex network of instrument positions and their mutual echoes.