Gold Prospects Underpinned by Rising Gold Lease Rates and Expected Gold Volatility Index

XAU/USD rose and breached the 200-day simple moving average, posting a close marginally above the line. The long upper tick provided the first clue of sustainability of bullish momentum and since then, silver was brought to the table as well.

Meanwhile, a rise in implied gold lease rates suggests physical supply is tight and prices may gain even more momentum. Historical data shows that periods of rising gold lease rates have a positive impact on the bullion prices themselves, making it a sound investment based on logic and precedent. Moreover, the worsening U.S. budget deficit/debt increase problem has prompted foreign central banks to diversify their FX holdings by adding more gold. Recent turmoil in the Middle East and tensions between the United States and China over Taiwan have provided additional incentives to hold gold.

The 30-day expected gold volatility index (GVZ) has surged towards levels not seen since the collapse of SVB (Silicon Valley Bank) amidst the venture capital banking turmoil earlier this year, which is still ongoing, albeit at a somewhat slower pace. Such a profound spike in expected volatility suggests gold is likely to remain well-positioned going forward, as GVZ tends to rise more when gold prices accelerate.