How To Profit Now That Gold Is Back

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Investors are betting on further increases in the price of gold after it touched a 12-month high in late March.

The reasons are twofold: first, the Federal Reserve’s cycle of interest rate rises appears to be over (despite oil rising again), and second, gold makes for a safe haven during banking sector turmoil.

Aakash Doshi, head of commodities for North America at Citigroup, told the Financial Times there had been a surge in investor activity in recent weeks. “The big catalyst has been the stress in the regional banking system in the U.S.… [and] it has been pretty much one-directional buying,” he said.

March was set to be the first month of net inflows into gold ETFs for 10 months. In addition, the volume of bullish options bets tied to gold funds has approached record levels.

Call options are a bullish bet that give investors the right to buy assets at a set price at a later date. By late March, the five-day rolling volume of call options on the SPDR Gold Trust ETF (GLD) had surged more than five-fold since the start of the month.

There was a similar increase in interest in CME’s gold futures and options tied to them, including deep “out-of-the-money” options, which would only pay out if the gold price hits new all-time highs.

And it’s not smaller investors or speculators jumping onto the gold bandwagon. Over the past few years, a key source of demand has been central bank buying. Between 2020 and 2022, central bank purchases went up 4.5 times!

Financial advisors sometimes recommend having some gold as an insurance policy against financial markets calamities.

So, let’s say you do want to add some gold to your portfolio. Then you face the choice between whether to go with a physical gold ETF or with an ETF that focuses on gold stocks.

Our colleague Serge Berger discussed this recently — is physical gold better, or gold stocks? Continue reading "How To Profit Now That Gold Is Back"