This is how TD Securities is playing gold to hedge against stagflation
(Kitco News) - The gold market continues to tread water below $1,800, butcommodity analysts at TD Securities are not ready to give up on the preciousmetal as they see rising stagflation effects.
In a report published last week, commodity analysts at TDSecurities said they initiated a $1,850/$2,000 long call spread for April goldfutures. With this trade, the Canadian bank expects gold prices to besignificantly higher within four months.
The trade comes as the gold market appears to stagnate withlackluster investment demand unable to push prices sustainably above $1,800 anounce. December gold futures last traded at $1,768.70 an ounce, up 0.23% on theday.
TDS noted that the entire precious metals sector hassuffered as the Federal Reserve looks to tighten its monetary policies andreduce its monthly bond purchases before the end of the year.
"Speculators have unloaded their length against risingCentral Bank purchases, reflecting the market's intense focus on pricing theFed's exit and ignoring risks on the horizon," the analysts said.
Data from SPDR Gold Trust (NYSE: GLD) shows that so far thisyear, investors have liquidated more than 190 tonnes of the precious metal fromthe world's largest gold-backed exchange-traded fund.
One of the reasons rising inflation pressures has notsupported gold prices is that it is adding to expectations that the U.S.central bank will raise interest rates sooner than expected. However, analystssaid that gold remains attractive as rising inflation also adds to the threatof stagflation.
"Although stagflation has captured a share of mind, ithas yet to translate into additional gold demand. However, as the global energycrisis intensifies, reasons to own the yellow metal are also growing morecompelling. A cold winter could send energy prices astronomically higher,asymmetrically fueling stagflationary winds," the analysts said.
The Canadian bank expects that short-covering in the goldmarket could spark a bigger momentum move by early 2022.
By Neils ChristensenFor Kitco News
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