Gold Prices Poised to Surpass Goldman's Year-End Forecast Amid Options Demand

Gold prices are on the rise and may even surpass Goldman Sachs's year-end forecast of $4,900 as demand for bullish options fuels further gains. According to a note from Goldman, stronger demand from Western investors combined with continued central bank purchases could lift gold toward important option strike prices.

The bank pointed out that gold call option demand has increased sharply amid renewed demand for global macro-policy hedges, creating a mechanical price amplifier that can work in either direction. As gold approaches key strike prices, dealers who sold call options may need to purchase bullion to hedge their exposure, adding momentum to the rally.

However, Goldman warned that a decline in prices could prompt dealers to unwind their hedges, intensifying a sell-off. The bank attributed gold's advance toward $4,600 an ounce to fading expectations of a September US Federal Reserve rate hike following the Fed's decision to hold policy steady in July and the release of softer employment and inflation data.