The sharp fall in gold prices Monday was caused by a number of different factors, but margin calls may have over-extended the drop and forced many to liquidate their positions, said Thomas Vitiello, partner at Aurum Options Strategies. Vitiello remains bullish on the commodity in the long term and said this situation could create opportunities for investors.
Gold prices broke through the $1,400 level Monday, sparking worries that the 12-year bullish cycle in the precious metal may be at an end.
"This has been a pretty drastic drop, volatility in the options market has exploded overnight and there are a lot of margin calls and people liquidating positions," Vitiello said on "Squawk on the Street" Monday. " A lot of passive longs that were in the market are out. Most people that bought gold last year are underwater so they have to liquidate their positions."
When asked whether the drop in gold can be explained by fundamental forces, such as the Federal Reserve's tapering strategy or the events in Cyprus, Vitiello said, "I think it's a convergence of a lot of different factors. There was a lot of negative sentiment, so people are getting nervous and the longs liquidate. It over-extends because of the margin and those sometimes give you some opportunities to catch an over-extension and get long."
"A lot of people were bullish at $1,800, they're not doing well right now. Everybody is bearish here so maybe you should look for an opportunity," he said.