Gold Prices May Soar Past $4,900 as Options Demand Surges
Gold prices may surpass Goldman Sachs's year-end forecast of $4,900 due to surging demand for bullish gold options. According to a recent note from Goldman, this rising demand could amplify further gains in the price of gold.
The bank attributes the increase in gold call option demand to renewed interest in global macro-policy hedges. This, in turn, is creating a 'mechanical price amplifier' that can drive prices both up and down.
As gold approaches key strike levels, dealers who sold call options may be forced to buy bullion to hedge their exposure, which could accelerate the rally. However, Goldman also warns that this dynamic cuts both ways: a price pullback could trigger dealer hedge unwinds and deepen any sell-off.
The bank notes that gold's recent move toward $4,600 an ounce has been driven by reduced expectations of a September US Federal Reserve rate hike following the Fed's July policy hold and softer jobs and inflation data. This has led to increased speculative positioning on COMEX and boosted exchange-traded fund demand.