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Gold Touches New 3-Month High on Global Tensions, Options Play

Published 10/16/2018, 02:55 PM
Updated 10/16/2018, 02:55 PM
© Reuters.  Gold settles up, refreshing 3-month highs.

Investing.com - Gold futures settled up on Tuesday, hitting 3-month highs for a second day in a row as a sea of global troubles kept safe-haven demand churning. Traders also cited speculators' attempts to steer the market toward $1,250 an ounce to cash out options bought at that level.

Gold for December futures settled up $7, or 0.6%, at $1,231 a troy ounce on the COMEX division of the New York Mercantile Exchange, after hitting a July 16 high of $1,235.90 during the session.

But in post-settlement trade it gave back all those gains, trading slightly lower, as stocks on Wall Street rallied on strong earnings. Gold is a often a contrarian bet to equities and the dollar. The dollar Index, which measures the greenback against six other currencies, was barely down at 94.75 at 2:51 PM ET (18:51 GMT).

While gold remains down about 6% for 2018, it is up more than 3% in October for its strongest performance in seven months.

A surfeit of geopolitical tensions have kept gold prices bubbling over the past three weeks, with Saudi Arabia in a deepening crisis over the disappearance of an allegedly murdered journalist, China locked in a trade war with the United States and Italy trying to solve a budget drama without spillover risks to the eurozone.

U.S. bond yields have also hit multiyear highs, restraining the dollar from rallying -- to gold's advantage -- despite the Federal Reserve on a particularly hawkish path of higher interest rates.

But gold was seeing strong support from speculators attempting to push it to $1,250 or beyond ahead of the expiration of options on Oct. 25.

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"There are lots of call options between $1,235 and $1,250 that were sold by hedgers who using the proceeds to buy puts at $1,180 or below," said George Gero, precious metals analyst with the RBC Capital Markets group in New York.

"Those $1,180 puts have been rendered useless by the market's move higher. But the call options are very much alive and they place the sellers on the hook, especially if the market gets to $1,250," Gero said, adding that the current open interest of 400,000 contracts for gold options vs. around 1.4 million for futures was "one of the highest in a while."

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