$XAUT $XAU Goldman Sachs Bank believes gold prices may exceed their target of $4,900 per ounce by the end of the year, as demand for call options increases, potentially amplifying the metal’s upward moves through hedging activities carried out by market participants in the options market.
The bank explained that the rise in gold and its approach to key strike levels for options contracts may force traders who sold call options to buy gold for hedging, creating an additional buying wave that pushes prices higher—beyond what fundamentals alone would achieve.
However, the hedging mechanism itself could also work in the opposite direction. If gold declines, traders may need to unwind their hedges and sell positions, which could accelerate the pace of the drop and make the correction more severe than usual.
Goldman Sachs links the rise in gold to around $4,600 with reduced expectations for U.S. interest-rate hikes in September, after the Federal Reserve held rates steady and data on jobs and inflation came in more moderate. This contributed to the return of speculation on gold on the COMEX exchange, along with increased demand for exchange-traded funds.
Therefore, Goldman Sachs does not necessarily view the $4,900 level as a hard ceiling, as the combined effect of Western investment demand and purchases by central banks—along with the impact of the options market—could drive gold to even higher levels.
The bank explained that the rise in gold and its approach to key strike levels for options contracts may force traders who sold call options to buy gold for hedging, creating an additional buying wave that pushes prices higher—beyond what fundamentals alone would achieve.
However, the hedging mechanism itself could also work in the opposite direction. If gold declines, traders may need to unwind their hedges and sell positions, which could accelerate the pace of the drop and make the correction more severe than usual.
Goldman Sachs links the rise in gold to around $4,600 with reduced expectations for U.S. interest-rate hikes in September, after the Federal Reserve held rates steady and data on jobs and inflation came in more moderate. This contributed to the return of speculation on gold on the COMEX exchange, along with increased demand for exchange-traded funds.
Therefore, Goldman Sachs does not necessarily view the $4,900 level as a hard ceiling, as the combined effect of Western investment demand and purchases by central banks—along with the impact of the options market—could drive gold to even higher levels.
