Gold hit a record high with spot prices reaching $4,164 per ounce during early trading. This increase was fueled by strong investments, rising US-China trade tensions, and the expectation that the Federal Reserve will continue to lower interest rates. Silver also saw gains, marking its fifth consecutive day of rising prices, which surpassed $53 per ounce. This was partly driven by a historic short squeeze in London.

ETF Growth in Gold Holdings

ETFs are seeing a rise in gold holdings, with inflows of 8.5 thousand ounces over two recent sessions. This brings the total known holdings to 97.5 million ounces. Last week alone, net inflows reached 240 thousand ounces, the highest since September 2022. Both gold and silver have performed very well this year, with prices climbing over 55% and 80%, respectively. This increase is driven by the Fed’s policy changes, central bank asset purchases, and ongoing geopolitical uncertainties, which have raised the demand for safe-haven assets. With gold exceeding $4,164 per ounce and silver over $53, we are witnessing strong upward momentum. While this surge creates clear opportunities, it also demands careful risk management in the coming weeks. The high prices are making options contracts, especially for hedging, more expensive.

Bullish Strategies Remain in Focus

Given the robust ETF inflows and expectations for further Federal Reserve rate cuts, bullish strategies are a priority. Traders should think about using call options to benefit from further price increases while minimizing potential losses. Ongoing geopolitical tensions and strong central bank buying provide firm support for these positions. However, after such a rapid rise—gold has increased over 55% this year—the risk of a sharp pullback is considerable. It may be wise to buy put options or set up bear put spreads to safeguard existing positions or profit from a possible short-term dip. This strategy is especially relevant as markets may become overinflated due to speculative buying. Recent data shows the CBOE Gold Volatility Index (GVZ) has jumped to 29.5, a level not seen since early 2024 during banking sector instability. This high implied volatility indicates that traders are anticipating significant price swings soon. Selling options, such as covered calls on physical holdings, is becoming a more appealing way to generate income. We are witnessing investment flows similar to the surge for safe havens seen during the 2020 pandemic. Back then, this was followed by several months of consolidation once the primary drivers calmed down. History indicates that while the long-term trend remains strong, a period of stabilization or decline is likely after such a sharp rise. For silver, the situation is even more precarious due to the historic short squeeze. This makes it particularly susceptible to a sharp reversal once the buying pressure from traders covering their shorts fades. The gold-silver ratio has decreased to 78, yet this is still high compared to historical peaks during bull markets, suggesting that silver’s rally may not be as fundamentally sound as gold’s. Create your live VT Markets account and start trading now.

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