Gold Bulls Bet on Exotic Options and Spread Trades Amid Hawkish Fed Comments

The recent surge in gold prices has been driven by investors betting on further rises through exotic options and spread trades, despite hawkish comments from Federal Reserve Chair Kevin Warsh. The U.S. Treasury's efforts to control American borrowing costs have revitalized gold bulls, who are shifting towards more complex derivative instruments such as dual-asset digital options and cross-asset exotic options.

These strategies allow for betting on U.S. dollar depreciation and a significant future rise in gold prices at a lower cost. The trade-off is that failure to meet any single condition may result in zero returns, accompanied by higher pricing complexity, liquidity risks, and counterparty risks.

Wall Street financial giants such as Citi, Bank of America, and Deutsche Bank believe that gold is likely entering a new upward phase within a long-term structural bull market. Citi raised its target from $4,500 to $4,800, while Deutsche Bank set a year-end benchmark target of $4,700, $5,100.

Despite the hawkish comments from Warsh, gold bulls have not retreated, and investors are refocusing on going long gold through direct demand linked to exchange-traded funds (ETFs) or via the derivatives market. Akash Doshi, Head of Gold and Metals Strategy at State Street Investment Management, stated that 'the currency depreciation trade has merely paused temporarily; it has not disappeared.'

Gold option activity has been more subdued than in early 2026, with implied volatility for gold options rising but not yet reaching first-quarter levels. Option market skew, the premium investors pay for bullish bets, has also narrowed.