Gold 0.21%
£3,233.54 OZ
Silver -2.37%
£47.90 OZ
Platinum -0.49%
£1,401.21 OZ
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Precious metals are famously volatile. Prices can move sharply on the back of economic data, central bank decisions, or sudden shifts in investor sentiment.
But there’s another, less visible force that can make these price moves more extreme: negative gamma in the options market.
In this article, we’ll unpack what negative gamma is, why market makers end up carrying it, and how it can trigger powerful feedback loops that push gold and silver prices higher in fast-moving markets.
Before diving into negative gamma, it helps to understand the basics.
Options traders use something called the “Greeks” to measure risk. Delta tells you how much the price of an option changes relative to the underlying asset. Gamma measures how quickly that delta itself changes as prices move.
For someone who has sold options, gamma is usually negative. This is where the trouble starts.
Most of the time, investors are net buyers of call options on gold and silver. Calls give them cheap exposure to rising prices without having to commit the full capital to own bullion or ETFs.
But if investors are buying calls, someone has to be on the other side of that trade. That “someone” is usually the market maker — a dealer whose job is to provide liquidity.
Market makers don’t typically hold a big directional view on gold or silver. Instead, they earn their living from bid-ask spreads and premiums. To do that, they frequently sell call options to investors.
Selling a call brings in premium income, like an insurance company charging a fee. But it also creates an exposure that must be managed. That’s where negative gamma comes in.
When a market maker sells a call option on silver, they take on negative gamma.
If silver drifts lower, the option they sold loses value, and they can relax — that’s manageable.
If silver moves higher, the option becomes more valuable to the buyer, and the dealer’s risk grows.
To protect themselves, the dealer hedges by buying some silver (or a silver ETF) in the market. But here’s the catch:
As silver rises further, the dealer must buy more and more silver to stay hedged.
The faster silver rises, the more aggressive the buying has to be.
This creates a feedback loop where rising prices force more buying, which pushes prices higher still. This dynamic is known as a gamma squeeze.
Negative gamma can turn a normal rally into a sudden, sharp spike.
Imagine silver has already been trending higher because of strong physical demand or safe-haven flows. At the same time, large numbers of investors have bought call options.
Dealers on the other side now find themselves needing to buy silver aggressively to hedge. Their hedging activity adds fuel to the fire, and prices can overshoot levels that fundamentals alone would justify.
We’ve seen similar dynamics in equities — most famously in “meme stocks” like GameStop, where gamma squeezes led to explosive rallies. But the same mechanics can play out in precious metals, particularly when physical demand and futures positioning align.
This brings us to the Exchange for Physical (EFP) market, which links futures to physical bullion. Recently, EFP spreads in gold and silver have “blown out” — meaning the gap between futures prices and physical delivery widened significantly before easing back.
That widening is often a sign of stress: either physical demand is strong, or hedging activity is putting unusual pressure on the system. Combine this with negative gamma positioning by dealers, and you have the ingredients for amplified volatility.
In simple terms:
For long-term bullion investors, this matters because it shapes how prices behave in the short run.
Importantly, negative gamma dynamics don’t last forever. They’re most powerful when prices are moving quickly, and option dealers are scrambling to adjust. Once the market stabilises, the effect fades.
Think of market makers like ticket resellers. Fans (investors) want to buy concert tickets (call options). The reseller promises to sell them tickets at a fixed price, even though they don’t yet have enough tickets in hand.
If the concert suddenly becomes hugely popular, the reseller has to rush into the open market to buy more tickets to meet their commitments. But as they buy, prices go up — and their scramble to secure supply drives prices even higher.
That’s what happens in gold and silver markets when negative gamma collides with rising prices.
For bullion investors, negative gamma is not something to fear — but it is something to understand. It explains why gold and silver can sometimes move in dramatic bursts that feel disconnected from the day’s news.
Dealers and market makers often sell call options to investors — that’s their role in providing liquidity. This naturally leaves them carrying negative gamma exposure.
When prices move quickly higher, dealers’ hedging forces them to buy more of the underlying (ETFs, futures, or even physical metal). This adds momentum to rallies and can exaggerate price moves.
Exchange-for-Physical (EFP) spreads show the link between futures and physical metal. When these spreads widen, it can point to strain in how dealers are managing hedges and supply.
When prices move quickly higher, dealers’ hedging forces them to buy more of the underlying (ETFs, futures, or even physical metal). This adds momentum to rallies and can exaggerate price moves.
Investing in Silver
Silver coins offer investors a tangible, low-barrier way to participate in precious metals, combining affordability with intrinsic value. They also provide liquidity, global recognition, and potential upside in both safe-haven demand and industrial growth
