Gold May Have Much Higher To Climb
Michael Kramer | Mar 11, 2022 18:16
This article was written exclusively for Investing.com
Gold prices have soared in recent weeks as investors have sought out safe-haven assets amid the Russian invasion of Ukraine. Additionally, gold appears to be offering some investors a place to hide as inflation has continued to spiral out of control and there is no sign of it abating. The uncertain outlook and strong inflation rates have led some traders to bet on SPDR Gold Trust ETF (NYSE:GLD) to rise, suggesting that gold prices move even higher over the next few weeks.
The latest CPI data confirms that inflation in the US is still very hot, climbing at 7.9% on a year-over-year basis. Even when factoring out food and energy, the year-over-year CPI increased by a stunning 6.4%. These very high inflation rates have sent gold up to just below $2,000.
Bullish Bets/h2
But gold may not stop at $2,000. Options trades in the SPDR Gold Trust ETF have seen a surge in call buying over the past few trading sessions. On Mar. 8, the open interest for the GLD ETF on June 30 $235 and $250 calls surged by over 100,000 contracts apiece. The data showed that the calls were part of a spread transaction, with the trader paying $0.73 per contract to create the bullish position. It would indicate that the GLD trades above $235 by June but stays below $250. That would be a significant gain for the GLD over the next few months from its current price of roughly $187 on Mar. 10.
Then on Mar. 9, the open interest for the Mar. 31, $190 calls and $200 calls rose by roughly 44,000 contracts each. The data shows that the trader paid around $3.30 per contract to create this bullish spread. It would imply that the GLD trades above $190 by the end of March but stays below $200. For the trader to earn a profit, assuming the contracts are held until expiration, the GLD would need to rise above $193.30.
Breaking Out/h2
Gold has undoubtedly broken out from a technical standpoint and is very close to breaking above its all-time high of around $2,100. After a big run-up starting in 2018, the metal consolidated sideways since peaking in late 2020. However, the metal broke a massive downtrend that offered strong resistance for multiple months. Finally, gold was able to break above that trend in the middle of February.
The relative strength index has been steadily rising as well, suggesting that momentum for gold has shifted more positively in recent weeks. While the current RSI level means the metal is overbought at the moment, it also indicates that the strong uptrend in gold should continue over the longer term.
It would seem that as long as inflation rates remain high and uncertainty continues in Eastern Europe, gold should continue to see a bid. However, if the uncertainty in Eastern Europe eases and central bank monetary policy tightening begins to ease inflation, then gold's outlook could change very quickly.
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