Strong activity in gold options spread trading likely reflects changing expectations for interest rates and election risks in the second half of 2024, according to the World Gold Council (WGC).
In its latest monthly report, the World Gold Council noted that a typically “benign” and “often overlooked” segment of the gold market is seeing renewed interest, suggesting investors are hedging or speculating on the market. both on a rate reduction cycle and on its outcome. of the American election.
The board found that options spread positions (OSPs) in the Commodity Futures Trading Commission’s (CFTC) Trader Engagement Report have been steadily increasing, approaching levels not seen since 2019-20, and before that , 2013 and 2011.
“Looking at these periods, it appears that the triggers for an increase in PSB activity were related to one of two scenarios: either a change in interest rate policy or a market risk event “, said the WGC.
The summer of 2011 was marked by the debt ceiling crisis, he noted, which sparked bets at the time that there would be the first U.S. government default.
Eight years later, through 2019, a surge in option allocation positions deepened as investors speculated about the start of a cycle of Fed cuts, which materialized in July of the same year. year.
Shortly after, the outbreak of COVID-19 led to a new spike, alongside an increase in implied volatility.
“A new, more recent hike in December 2023 occurred against a backdrop of dovish Fed ‘language,’ but did not result in rate cuts,” the WGC said.
“We infer from these historical episodes that risks linked to market events and changes in key rates are likely drivers of an increase in OSPs. Today we face both.
“Markets expect the Fed to embark on a surprisingly aggressive path of rate cuts in September and that we have a systemically important US election in early November.”
Amid this near-term uncertainty, investor behavior reflects a strong conviction in gold as a hedge against the risks of immediate events, the WGC explained, while positioning it to benefit from lower interest rates.
Looking back at August, the WGC reported that the commodity posted another healthy gain to finish up 3.6 per cent at US$2,513 an ounce. It is worth noting that it also hit a new high of US$2,531.60 on August 20, although it has declined slightly since then.
Gold ETFs continue their hot streak
Western investors’ renewed positive sentiment towards gold helped global gold-backed ETFs extend their inflow streak to four months, adding US$2.1 billion in August.
These “non-stop” inflows between May and August helped reduce global gold ETF losses year-to-date to $1 billion.
“All regions recorded positive flows [and] Western funds once again contributed the lion’s share,” the WGC said.
Asian funds extended their consecutive inflow flow to 18 months, although the addition of $32 million was the lowest since May 2023, and North America saw its second consecutive month of inflows, adding $1 .4 billion dollars.
European funds attracted $362 million, their fourth consecutive monthly inflow. According to the WGC, market volatility and the end of the popular yen carry trade have likely boosted demand for safe-haven assets, with gold ETFs simultaneously experiencing an increase in capital flows into the region.
Australia also recorded its third consecutive month of inflows, with US$66.3 million in August. Holdings increased by 2.16 percent to 41.4 tonnes.
Total gold assets under management worldwide, benefiting from capital inflows and rising gold prices, rose 4.5 percent to a new month-end high of $257 billion. .
