What better environment for gold than a banking crisis coupled with runaway inflation and geopolitical tensions?
Source: Financial Times
Traders are betting on further increases in the price of gold after it touched a 12-month high recently, as investors predict the US Federal Reserve’s (Fed) cycle of interest rate rises is over and seek safe havens during banking sector turmoil.
Spot prices for gold touched $2,000 per ounce for the first time since the immediate aftermath of Russia’s invasion of Ukraine. Prices slipped back after testing the level several times throughout the week, but trading in options contracts linked to the metal suggests many investors are expecting a more sustained rally in the weeks ahead.
Financial investors generally make bets on gold prices through futures contracts, exchange traded funds, or options contracts tied to them. There had been a surge in investor activity across all three channels in recent weeks. The big catalyst has been the stress in the regional banking system in the US.
At the same time, the bank crisis has led investors to reassess the outlook for interest rates in the US. Rising rates over the past year had reduced the attractiveness of yield-free gold investments, but investors have become increasingly convinced that the Fed’s latest rate hike will be its last. If we are at the end of a rate hiking cycle, we expect there is more scope for upside in the gold price.
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