The Risks Ahead for Gold in a High Rate Environment
By Ivan Castano
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Biggest Risk for Gold?

With an eye to 2024, Hennig asked about the biggest risks for precious metals investors to watch.

Stefans answered the near-term outlook remains “tough, not only for gold but commodities in general as they are zero-yielding assets” viewed against high treasury yields, so they should be focusing on long-term opportunities.

“It’s a very difficult scenario for general commodities and especially gold. But I think this is a short-term phenomenon,” noted the trader, who spent 13 years in leadership positions at HSBC’s precious metals desk before joining MKS PAMP in 2019.

“We are seeing that with the two and 10-year yield inversion, which is starting to flatten out but remains inverted. This shows investors are still concerned about what the future will look like, not only for the U.S. but also on a macro global level, and that uncertainty continues to bring people into gold.”

Risk Management “Extremely Important”

Amid such challenges, Stefans said proper risk management has become pivotal at MKS PAMP.

“It’s extremely important… We are in a binary space, especially if you are talking about short-term risk management. Any headline can drive markets 1% to 4% higher or lower on a given day and that makes it very, very tricky to be in our seats and for others within our industry to manage the market.”

Heightened volatility has fueled record demand for CME Group’s Short-Dated Gold options contracts, including those covering Monday, Wednesday and Friday expiries, according to Hennig. Interest in Micro Gold contracts has also grown “tremendously” in the past five years, she added.

The bulk of this growth has come from retail investors looking at safe havens such as gold to diversify their holdings amid looming risks. When asked how this has impacted the overall market, Stefans noted the phenomenon has been widely felt, sending premiums for small gold bars and coins into record territory.

“Investors continue to want their money allocated in a safe type of haven such as gold because of future uncertainty and/or currency volatility, not only with the dollar but also with the Turkish lira or Chinese renminbi,” Stefans said. “Across the world, the uncertainty of what is happening, including in their own countries, is driving retail investors into precious metals products.”

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About the author

Ivan Castano
Ivan Castano

is a seasoned financial editor, corporate content specialist and journalist with over two decades’ experience writing for leading publications including Bloomberg, Forbes, Barron’s, MarketWatch, Euromoney and FT groups, among many other leading titles. He writes about emerging markets, finance, technology and investing.

 

 

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