Goldman Sachs has altered its strategy regarding gold investments, moving its position from cash to options as a response to the uncertainties surrounding the upcoming U.S. election. Despite recent fluctuations due to a stronger dollar, international gold prices have been reaching new highs, maintaining a historical peak.
The bank's commodities trading division explained that this strategic shift allows them to buy at election-driven lows, driven by concerns over existing positions. Officials from Goldman noted a widespread bullish sentiment on gold, indicating, "everyone we talked to is going long on gold," necessitating a reevaluation of their approach.
Goldman Sachs now opts for a market strategy centered on short-term leveraged structures to acquire gold options. They are willing to pay a premium to potentially gain additional returns in the event of a contested election result. For example, a two-month option with a $3,000 strike price currently has a 12% premium over the spot gold price of $2,753.
The bank is also engaging in three to six-month 20% delta call spread options, which involves buying lower strike price call options while selling higher strike price options with the same expiration. This strategy is designed to capitalize on the expected medium-term bullish trend in the gold market.
Goldman's recent analysis shows a significant unwinding of positions, the first in a month, indicating a divided market view on gold. They assert that while various election outcomes could influence gold prices, a contentious result would likely hinder any price increase.
The bank provided insights on potential election outcomes, suggesting that a Harris win might initially be bearish for gold, but any negative impact might soon be absorbed, supporting medium-term trends. Conversely, Trump's fiscal policies are generally perceived as bullish for gold, though this perception remains contingent on broader market strategies.
In summary, Goldman Sachs emphasizes that gold's trajectory cannot be simply boiled down to a straightforward win-lose scenario. Given gold's strong performance this year, the bank prefers holding positions through options, allowing for greater flexibility amid potential market shifts.
