Time for the gold rally to pause? Time for the gold rally to pause? Time for the gold rally to pause?

Time for the gold rally to pause?

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Gold has rallied strongly in response to the US Fed pausing and even giving hints of reduced QT. Given the elevated expectations in the market, there is a short-term downside risk if the language on QT stop is not delivered.

Following a very strong December, and after pausing below $1,300/oz for a few weeks this month, the yellow metal broke higher last Friday when the market reacted enthusiastically to a Wall Street Journal article discussing the potential for a Fed turnaround on quantitative tightening.

On that basis the market may be most sensitive to any discussion of the Fed’s QT programme in Fed chair Jerome Powell’s press conference this evening. So be prepared for two peaks in the event risk reaction tonight – the issuance of the statement itself and any alterations it contains, and then how Powell responds to questions on the policy outlook in the press conference. 

The market appears quite confident that it has tamed Powell’s prior hawkish tendencies after the market so viciously rebelled on the message delivered at the December Federal Open Market Committee meeting. So it looks like the market, especially gold, is positioned for a Fed thaw on QT even if it expects a two way message on rate guidance. In other words if looks as if the higher volatility scenario would be a more hawkish Fed than expected on the QT discussion.

Renewed risk appetite for stocks and riskier bonds has only somewhat offset the positive impact on gold of a weaker dollar and macroeconomic and geopolitical concerns. While we maintain a bullish outlook for gold as highlighted in our Q1 Outlook, we cannot ignore the risk of a short-term pull-back should the FOMC fail to deliver what the market expects.
One of the ways to seek downside protection while maintaining a bullish view on gold is through the use of options. Paying for protection ahead of a key risk event such as today’s FOMC meeting makes sense in our view. Below we have highlighted a couple of options example with the cost being the premium paid for the right –but not the obligation – to sell gold at a specific (strike) price. 

Sport Gold (XAUUSD)

XAUUSD, Put strike $1,300/oz, Expiry February 6, Cost $2.5/oz, Reference price: $1,314/oz.


GCH9, Put strike $1,300/oz, Expiry February 25, Cost $5/oz, Reference price: $1,316/oz.

There are multiple different ways to gain exposure to gold. Below we have listed a selection for inspiration ranging from spot, futures and stocks to exchange-traded funds providing an exposure to gold or a basket of mining companies. These have been picked primarily due to their size and should not be regarded as specific recommendations.  
Source: Saxo Bank

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.