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This is how TD Securities is playing gold to hedge against stagflation

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(Kitco News) - The gold market continues to tread water below $1,800, but commodity analysts at TD Securities are not ready to give up on the precious metal as they see rising stagflation effects.

In a report published last week, commodity analysts at TD Securities said they initiated a $1,850/$2,000 long call spread for April gold futures. With this trade, the Canadian bank expects gold prices to be significantly higher within four months.

The trade comes as the gold market appears to stagnate with lackluster investment demand unable to push prices sustainably above $1,800 an ounce. December gold futures last traded at $1,768.70 an ounce, up 0.23% on the day.

TDS noted that the entire precious metals sector has suffered as the Federal Reserve looks to tighten its monetary policies and reduce its monthly bond purchases before the end of the year.

"Speculators have unloaded their length against rising Central Bank purchases, reflecting the market's intense focus on pricing the Fed's exit and ignoring risks on the horizon," the analysts said.

Data from SPDR Gold Trust (NYSE: GLD) shows that so far this year, investors have liquidated more than 190 tonnes of the precious metal from the world's largest gold-backed exchange-traded fund.

One of the reasons rising inflation pressures has not supported gold prices is that it is adding to expectations that the U.S. central bank will raise interest rates sooner than expected. However, analysts said that gold remains attractive as rising inflation also adds to the threat of stagflation.

"Although stagflation has captured a share of mind, it has yet to translate into additional gold demand. However, as the global energy crisis intensifies, reasons to own the yellow metal are also growing more compelling. 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 gold market could spark a bigger momentum move by early 2022.

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