The SPDR Gold Shares (NYSEArca: GLD), the largest gold ETF, and competing gold ETFs have recently come under pressure as riskier assets, namely stocks, have rallied. However, the yellow metal’s recent lethargy isn’t preventing some traders big bets on bullion.
Gold ETFs previously rallied amid increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive so that the money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
Even with gold’s recent lethargy, options market data suggest some traders are taking fliers on epic price increases for the yellow metal.
“The gold options market saw $1.75 million in block trades betting the precious metal could almost triple in more than a year, surpassing the record,” reports Bloomberg. “Around noon in New York, 5,000 lots for a gold option giving the holder the right to buy the precious metal at $4,000 an ounce in June 2021 changed hands. The bets were sold at $3.50 an ounce.”
Gold prices settled around $1,456 per troy ounce on Wednesday.
Going For The Gold
A price point of $4,000 for gold may seem far-fetched, but that doesn’t bullion won’t trend higher in 2020. In fact, some analysts are expecting just that.
“Investment deficit creates excess savings, supporting gold. In theory, savings should equal investment, but due to this decline in capex and a rise in precautionary cash balances, a savings surplus is beginning to develop that is supporting gold prices,” Goldman analysts noted in an outlook report.
“When combined with 750 tonnes of central bank gold purchases related to de-dollarization and defensive portfolio rotations, the savings glut means we maintain our bullish gold stance in 2020 with a target of $1600/toz.,” they added.
There’s still some work to be done for gold prices to reclaim the 2011 highs.
“Gold futures climbed to a record $1,923.70 an ounce in 2011 as the Federal Reserve bought over $2 trillion of debt to stimulate the U.S. economy. While bullion has rallied 14% this year, the precious metal is still 24% below the current all-time high,” according to Bloomberg.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.