Gamma Squeeze Suspected of Triggering Gold Drop on Friday

Gold experienced significant selling pressure last Friday, with some analysts believing that the price movement was triggered by a market phenomenon known as gamma squeeze. According to information from PANews, this phenomenon creates a domino effect in trading activity that accelerates price movements in both directions.

Gamma Squeeze Mechanism and Trader Dynamics

A gamma squeeze occurs when the asset price moves through levels where many options contracts are concentrated. When the price surpasses substantial options positions, traders holding short options positions are forced to buy futures or gold ETF shares in large quantities to hedge their exposure. Conversely, when the price falls back through the same support levels, these traders may need to close their positions by selling, which then amplifies downward price pressure.

This reactive behavior creates momentum that drives the price continuously in one direction until a new equilibrium is reached in the market.

Options Concentration Data on Friday

On Friday, when the decline occurred, a large number of options contracts for SPDR Gold ETF expired at two main strike levels: $465 and $455. Simultaneously, CME Group’s March and April options show a very high concentration of positions at three critical price levels: $5,300, $5,200, and $5,100.

The accumulation of options volume at these levels creates a ‘firewall’ where dramatic movements are likely to occur when these positions are liquidated. Understanding this options distribution helps traders anticipate potential volatility in the upcoming trading days.