Goldman says options demand could push gold beyond $4 900 forecast
Gold prices could surge past Goldman Sachs's $4 900 year-end forecast, as surging demand for bullish gold options may amplify further gains, the bank said in a note on Friday.
The bank said a further pickup in Western investor demand, combined with continued strong central bank buying, could push bullion toward key option strike levels, where dealer hedging may mechanically accelerate price moves.
"Gold call option demand has risen sharply amid renewed demand for global macro-policy hedges, creating a mechanical price amplifier to both the upside and downside," Goldman said.
The options dynamic cuts both ways. As gold climbs toward key strike levels, dealers who sold call options may be forced to buy bullion to hedge their exposure, amplifying the rally.
But Goldman cautioned the reverse holds equally true, a price pullback could trigger dealers to unwind those hedges, deepening any sell-off.
The bank said gold's move toward $4 600 an ounce has been driven by receding expectations of a September US Federal Reserve rate hike, following the Fed's July policy hold and softer jobs and inflation data.
That has revived speculative positioning on COMEX and boosted exchange-traded fund demand, Goldman said.
"Renewed increase in Fed-hike expectations could likewise trigger dealer hedge unwinds and produce a sharper-than-usual correction," the note said.
Spot gold was on track for a third straight weekly gain, rising nearly 5% on the week, hitting a more than three-month high and breaching its 200-day moving average.
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