Gold Call Options at $2,000/oz – Goldman and Credit Suisse Bullish Due to US Interest Rates

Gold is trading at USD 1,778, EUR 1,300.20, GBP 1,114.90, CHF 1,606.10, JPY 136,750 and CNY per ounce. 

Gold’s London AM fix this morning was USD 1,780.50, GBP 1,115.29, and EUR 1,299.06 per ounce.

Friday’s AM fix was USD 1,764.00, GBP 1,109.02, and EUR 1,294.39 per ounce.


Cross Currency Table 

Gold is marginally lower today on hopes that changes in the political leadership in Italy and Greece might lead to a resolution of the eurozone’s debt crisis and prevent contagion and the breakup of the monetary union. This has seen risk appetite return with most Asian equity indices posting gains.

European indices are more subdued and may be taking a more realistic view regarding the political changes in Greece and Italy. 

The debt crisis is of a scale that simply changing who is in power and installing unelected technocrats will not solve the crisis. 

There is again a real sense of rearranging the deck chairs on the Eurozone Titanic and the root cause of the crisis – too much debt in the banking and financial sector and too much private debt has yet to be confronted. 

Gold’s positive momentum continued last week with gold recording a 1.8% gain. Gold has now risen three weeks in a row and looks set to record a second monthly gain after October’s monthly gain.

Gold remains up 25% year to date in US dollars and (22% in Euros and British pounds) and thus the recent correction and consolidation was a healthy development that took the short term froth out of the market and has now left the gold market with stronger foundations.

Physical demand from Asia continues but for now is below the very high levels seen in recent weeks.

Central bank demand continues. Overnight, the Russian central bank announced their intention to buy 100 tonnes of gold in 2011. Ria Novosti reports that Russia has acquired over 90 tons of gold since early 2011 and plans to increase the amount by 100 tons, the Central Bank Deputy Head, Sergey Shvecov, stated at a finance conference.

Concerns about the euro and Eurozone and the weak dollar have been cited as reasons for Russia’s continuing FX reserves diversification.

Options traders remain bullish with most open interest for November centering on $2000 calls, $3000 calls.

In options today, the largest change in open interest was seen in $1920 calls for the Nov 22 expiry, where OI rose 643 lots to 1,389 lots. $1900 calls rose 526 lots to 9,242 lots.

Gold ETF data shows continuing safe haven flows and diversification into gold.

Global holdings of gold rose last week, by nearly 897K oz, their largest weekly rise since the week ending Aug 5 2011, when holdings rose by a net 1.089M oz, according to Reuters. 

Total gold ETF holdings stand at around 68.854M oz, up a full 1.749M oz in the last month. November is shaping up to show the largest monthly inflow since July. So far this month, holdings have risen by 947K oz.

Goldman Sachs today reaffirmed that it remains overweight in commodities. On gold it says it will roll over its Dec 11 long to Dec 12.

"We expect gold prices to continue to climb in 2011 and 2012 given the current low level of US real interest rates, and as a result recommend a long gold position." 

Credit Suisse has said, "that gold may climb over $1,800 in the coming days with negative real interest rates as the ‘key driver’."

For breaking news and commentary on financial markets and gold, follow us on Twitter.

SILVER 
Silver is trading at $34.30/oz, €25.12/oz and £21.53/oz 

PLATINUM GROUP METALS 
Platinum is trading at $1,640.70/oz, palladium at $654/oz and rhodium at $1,525/oz. 

NEWS
(Reuters)
Gold steady as Italy, Greece offer hope‎

(MarketWatch)
Gold futures gain in electronic trading

(Reuters)
Gold edges up after Italy, Greece form governments

(RTE)
Oil up amid fresh fears on Middle East tension

COMMENTARY
(MarketWatch)
Brimelow: Is Gold Headed to $2,200?

(FXStreet)
Where is the ECB Printing Press?

(GoldSeek)
Physical gold to trump ETFs by 500% in 2011 hears Dubai conference

(Financial Times)
Currency Wars – Jim Rickards on ‘Currency Wars’

 

Mark O'Byrne

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