Gold rally could be similar to 1980: Trader

Gold bugs are finally getting a bid.

Prices of Gold continued to rally Thursday, rising more than 1 percent to a four-week high as uncertainty over a possible Fed rate hike had investors piling into the safe haven asset. The precious metal is now up more than 6 percent from the recent low hit in late July and some traders think now could be its time to shine.

Read MoreGold at 1-month high after Fed hints Sept rate hike is less likely

On Wednesday, when options volume in the SPDR Gold ETF, the GLD, ran 1 ½ times its daily average, one trader bet nearly $250,000 that the ETF could continue to rally over the next two weeks. Specifically, that trader bought nearly 12,000 of the Sept. 4 weekly 112-strike calls for 20 cents each. Since purchasing a call option allows a trader to buy a stock, or in this case ETF, at a certain price for a given time, this is a bullish bet that the GLD will rise above $112.20 by Friday, Sept. 4.

"The is one of the first times in a while that we've seen options traders bet on a rebound," Mike Khouw, a CNBC contributor, said Wednesday on CNBC's "Fast Money."

Bullion has been a notoriously tough long, as a strong U.S. dollar and stock market have pushed the yellow metal down nearly 20 percent since August 2013.

"We don't quite know how this will end," added Khouw. "But if gold's bear market is similar to the one in the early 1980s, it may still be marked by some significant rebounds."

Khouw noted that from its peak in 1980, gold fell 40 percent, then found a bottom and rallied only to sell off again. "This bear market could easily do the same even if it does ultimately go lower."

Gold is down more than 3 percent year to date and is on track for its third consecutive year of losses.

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Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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