Several interesting statistics can be gleaned from the current performance of gold. For the past 5 years, gold has returned an average of -12.28%, but that number declines to -3% over the past 1 year. If we extrapolate within the last 6 months, gold has appreciated by 8.20%, and over the past 30 days the gold price has firmed by 8.96%. On Thursday, 11 February 2016 gold surged by 4.37% or an amount of $52.26. At the time of writing this article, gold bullion is trading at $1246.56 an ounce on the back of rising demand, loss of confidence in central banks and financial stocks, and rampant disregard for equities. While silver hardly has the same appeal as gold bullion, it too has tracked the precious metal and risen sharply over the past 30 days by 10.26% percent, and is now trading at $15.73 per ounce for a gain of 2.97% on the day. On the face of it, it is a clear case of call options on gold bullion as a binary option trade and a short-term investment.

Why are investors moving towards gold?

Gold is one of those commodities that is regarded as a safe-haven asset. When equities markets are undergoing turmoil, there is geopolitical uncertainty, and/or interest rates are low (or unlikely to rise) gold always gains favour. It is the go-to commodity for investors who seek stability. Gold does not generate any interest for its owners, and that is precisely why it fares poorly in an economy where interest rates are rising. Janet Yellen the chair of the Federal Reserve Bank recently wrapped up a 2-day meeting in Washington DC where she explained to Republican and Democrat lawmakers the Fed’s perception of the US economy and the global economy and how this would impact upon decisions taken by the Federal Reserve Bank. Yellen struck a dovish tone and alluded to the possibility that there would be no rate hike in March owing to China weakness, global stock market uncertainty and the general economic malaise that is racking financial stocks, industrial stocks and technology stocks. A part of Janet Yellen’s speech that confirms the uncertainty in the global economy and the US economy can be seen below:

‘Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset.’

(Federal Reserve Official Site)

The absence of a rate hike in March 2016 is precisely the reason why the financial sector is reeling. Banks across the US and Europe have been hoping for an era of rising interest rates so that they can improve their profitability and revenue streams. Now that the global economy is teetering and has officially entered into a 20% retreat (as evidenced by the MSCI all country world index) it makes precious little sense to raise interest rates at this juncture. Instead, the knee-jerk reaction by market participants and those wishing to safeguard their financial portfolios is to flock towards gold.

Traders and investors have lost all confidence in the ability of central banks to stabilise the global economy. The Fed raised interest rates on 16 December 2015 and the results have been catastrophic for the world economy. The Bank of England and its governor Mark Carney opted not to raise interest rates above 0.50% for fear that it would do more harm than good for the UK economy. While the fundamentals in the US appear to be robust, with unemployment dropping to 4.9% from 5.7% a year ago, there are now real concerns that the US economy – led by the financial sector – will move into recession in 2016.

Place call options on gold and enjoy the ride

Of course, black gold is having a disastrous effect on equities markets. The two have moved in sync with one another; as oil prices have plummeted, so too have equities. The complete and utter lack of agreement between OPEC and non-OPEC countries on cutting production of crude oil has left the world drenched in oil with not enough demand to soak it up. The result is swelling inventory levels of crude oil and gasoline, expanded production and falling prices. The re-entry of Iran into the arena will only serve to destabilize oil markets further to the tune of 500,000 barrels per day.

This all plays well for gold. Given that expanded production of crude oil leads to declining oil prices which in turn leads to falling equity prices, gold is the winner in this quagmire. Analysts around the world are now weighing in with their top stock picks for gold in February. There is tremendous variety to choose from when trading gold or investing in mining companies. Anglo Gold Ashanti Ltd. (AU) is one of the top performers, followed by Barrick Gold Corporation (ABX) and Sibanye Gold Ltd. (SBGL). Fortunately, as a binary options trader you needn’t concern yourself with individual companies – you can simply trade the commodity on its own by placing call options on it.