Investment Banks See Gold Lower than $1,000 Soon

Investors are boosting bets gold will soon drop to $1,000 an ounce, options data show, as the U.S. Federal Reserve looks set to hike interest rates next week for the first time in nearly a decade.

Gold has already lost 9 percent this year, as investors expect higher prices to dent demand for the non-interest-paying metal.

A drop to $1,000 would be gold’s lowest since Oct. 2009, and could potentially cause a spike in physical purchases in key consumers, India and China. It is currently trading around $1,070, a near-six-year low.

At least two brokerages, ABN Amro and National Australia Bank, have said in the last week gold will drop to $1,000 in the coming months. Goldman Sachs said in November it expected gold to hit $1,000 in twelve months.

Put option positions tied to the $1,000 strike price for the most active February COMEX gold futures have jumped over 200 percent from the beginning of November to 6,950 lots as of Dec. 7.

They have risen by 1,600 lots in the last two sessions alone, likely after Friday’s robust U.S. nonfarm payrolls data that strengthened the case for a rate hike.

Put positions for the $975 strike have increased nearly 10 times since the beginning of last month to Monday.

The options expire on Jan. 26, indicating traders expect prices to slip towards those levels by then.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza