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Gold Prices Inch Closer To $1,700 On Round Of Monster Bets

Gold Prices

Gold prices have jumped to a fresh seven-year high as a risk-off mood continues to sweep the financial markets. Bullion has climbed as high as 1.21% to $1.688/oz on Friday’s session and appears headed for the biggest weekly gain since 2009 driven by one of the worst health scares in recent memory and a surprise rate cut by the Fed. Gold is one of the few commodities that appear to have true immunity to the fearsome coronavirus that has so far claimed 3,412 lives and infected more than 100,000. 

Meanwhile, the United States Federal Reserve cut its benchmark interest rate on Tuesday by 50 basis points to a range of 1% to 1.25% in response to the “evolving risks” posed by the COVID-19 coronavirus outbreak.

The yellow metal has now climbed more than 10% since the pandemic first struck about two months ago.

Separately, platinum surged 4.3% higher on Friday after Anglo American Platinum Ltd. declared force majeure and cut its production forecasts. Platinum AMSJ.J announced that it had temporarily shut down its Anglo Converter Plant due to repair work prompting it to cut its 2020 production outlook.

And bullish gold traders just cannot resist the bait as they continue to wager that gold prices are headed even higher.

(Click to enlarge)

Source: Trading View

Option trader bets $2 million on gold

Despite the massive gains by the precious metal, one options trader has bet the farm that the rally is far from done--and so far appears indicated in his or her bold decision.

As Michael Khouw, president of Optimize Advisors, told CNBC’s “Fast Money,” the said trader purchased 1,200 June 1,725 call options spending $17.20-a-pop in premiums on Monday--the day’s largest trade in gold futures. 

That works out to a hefty $2 million gold wager.

This trader is essentially betting that gold will rally above the $1725/oz strike price (about a 9% increase in gold price by June expiration). For this trader’s bet to be profitable, gold prices would have to climb above $1,742.20 by May 26, which is the day the June gold futures contracts expire. That would represent a 9% move higher from Monday’s close, and propel the commodity to its highest level since November 2012. He or she was not alone though, as bullish bets outweighed bearish ones 2:1.

And they’ve got a section of Wall Street right behind them, too.

Money manager Jeffrey Gundlach aka the bond king has told CNBC that gold is the best thing to own right now and is headed to new highs.

Related: Wall Street Unfazed By Recession Fears

“There is definitely scope for gold to test $1,700, although maybe it is a bridge too far this week, unless we get a shocking non-farm payrolls,” said Jeffrey Halley referring to the U.S. jobs data that are due later Friday. “Coronavirus turmoil next week will likely see gold get the momentum it needs.”

The advance of the viral epidemic across has shaken confidence across the globe with the World Health Organization urging all nations to pull out all the stops after the infection spread to 86 countries. This has prompted scores of major central bankers to proffer stimulus measures, including lower interest rates. Other than the Fed’s  emergency cut this week, Australia and Canada have also eased.

Meanwhile, traders have been pumping more money into bullion-backed exchange-traded funds (ETFs) with global holdings standing at a record and headed for an 8th straight weekly expansion.

(Click to enlarge)

Source: Bloomberg

Gold prices though are coming under some selling pressure in late Friday’s session after the Bureau of Labor Statistics revealed that 273,000 jobs were created in February, way higher than the 175,000 projected by economists. Not only did February’s job creation exceed expectations, but previous months' data were also revised significantly higher. 

These figures suggest that consumer fundamentals remain solid even as a deterioration in household spending continues being a big risk to the COVID-19 menace.

By Alex Kimani for SafeHaven.com

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