Gold’s status as ultimate safe haven remains unchallenged amid the general sell-off in the financial markets. Even silver got caught up in the panic selling, with spot prices tumbling by as much as 9% last Thursday. “This once again shows investors that the white precious metals primarily have an industrial character and are less suitable for protecting capital in crises times,” Commerzbank commodities strategists wrote.
Gold spot keeps breaking records, hitting 1,700 after the U.S. downgrade to double A plus by Standard & Poor’s on Friday. Some investors, namely hedge funds and asset managers, are hedging the possibility of a fall in value by buying puts on gold or through risk reversals, in which investors buy a call while simultaneously selling a put.
Deutsche Bank strategists noted investors have set strikes for puts at 2-3% below spot all the way to 10-12% below spot. “The options market is definitely worried about a continued move higher despite already extended levels in spot,” one precious metals trader wrote in an e-mail to Derivatives Intelligence.
The hedging, however, has been neither fast nor furious, reflecting investors’ sanguine attitude toward gold, the trader said. Indeed, it’s hard to see the yellow metal losing steam with investors fleeing their markets. The first speed bump along its upward trajectory would likely be the CME increasing margins, market participants noted.
