After nearing 2012 highs on Friday within striking distance of the $1,800 an ounce level, gold is set for volatile week ahead.
Gold settled on Friday at $1,775 an ounce – the precious metal has now gained more than $230 or 15% since hitting 2012 lows in mid-May.
The metal's recent moves higher were sparked by the widely-anticipated round of monetary stimulus (QE3) announced on 13 September by the US Federal Reserve.
While most investment banks predict a rise in the price of gold towards the end of the year, Deutsche Bank in a note on Friday emerged as the most bullish.
The German bank said the recent upward trend is comparable to price gains after QE1 and QE2 which indicates that the yellow metal is likely to cross the $1,900 an ounce level at the end of next month and $2,200 by the start of 2013.
Reuters reports that open interest of US gold futures has increased roughly 25% in the past 30 days and is now at a one year high:
"This could lead to greater volatility at the end of next week after (COMEX) option expiration as there are now many new longs at high prices anxiously watching signs from other markets," said George Gero, vice president of RBC Capital Markets.
CNBC's explains that on Tuesday gold options expire and that there is a lot of open interest at the $1,800 an ounce strike price.
Investment site Barrons.com reports the options market gives a sense of "just how fevered sentiment has gotten for gold miners". Bullish options to buy the GDX (Market Vectors Gold Miners ETF) "are priced the highest versus downside put options in about a year," and the the “skew,” as this trend is called is at "a low level that GDX has seen only three times in the last two years:
"That’s a function of traders buying up bullish options in anticipation that the rally continues."