Whether in the Fed’s Washington headquarters, the ECB’s Frankfurt base or the SNB’s offices in Berne and Zurich, it must have been absolutely hectic in the central banks in mid-March. The monetary authorities did, after all, need to avert a new financial crisis. Following the closure of Silicon Valley Bank (SVB), further US institutions had begun to falter. On this side of the Atlantic, Credit Suisse provoked considerable anxiety. After a dramatic collapse in its share price, it ended up in the arms of its competitor UBS. The turnaround in interest rates is regarded as one trigger of the turbulence just outlined. It is well known that the currency authorities have been trying for some time to dampen rampant inflation by tightening monetary policy sharply. Until recently it had looked as if they would still be able to maintain this course for some months to come.
In the wake of the current banking crisis, however, interest rate expectations have once again shifted significantly. This particularly true for the USA, with futures markets as late as mid-February pricing in a hike in interest rates at the Fed’s June meeting to a spread of 5.25% to 5.50%. If the CME Fed Watch Tool is anything to go by, the US central bank could actually signal a reversal of policy at this meeting and lower their key rate. The changing expectations have combined with the most recent turbulence on the stock markets to boost the price of gold. Having trended downwards in February, the troy ounce then experienced a dynamic rebound. Commerzbank Commodity Research sees considerable uncertainty going forward. “The further development of the precious metal depends heavily on whether and how quickly the market turmoil subsides and the Fed is able to raise its interest rates further,” the analysts conclude.
Should interest rate expectations head downwards again, the troy ounce could continue its ascent. For the case that the situation calms down, with authorities, central banks and politicians having succeeded in dispelling the worries on the markets, the Fed would probably increase rates further. “In this case, the gold price would likely give up its recent gains,” the Commerzbank experts write. In keeping with the decidedly mixed picture, Leonteq has now launched an interesting new issue on gold. The capital protection certificate with participation enables investors to bank on further rises in the price of the precious metal while at the same time protecting themselves from losses, because Leonteq offers a full repayment guarantee for the USD 1,000 denomination at the end of the three-year term. For as long as gold does not reach or pass the barrier, however, investors only participate in further price gains. The prevailing threshold stands at 150% of the initial fixing.
The capital protection means that the repayment cannot be less than 100%. If gold appreciates in the next three months, the amount returned rises. Assuming that at final fixing the underlying is a tenth above the starting level, investors would enjoy a return of 10%. If a barrier event occurs, the participation mechanism lapses. In this case Leonteq will redeem the issue at 120% as a sort of “compensation” for any profits lost thereby. Since the repayment profile resembles a shark’s fin, this product is also known as a shark note. It is important to bear in mind that the modalities as outlined, including capital protection, only apply on maturity. A range of parameters, such as the interest rate level, will affect the value of the investment over the term. In that regard the certificate can fall below the guarantee level. Not least for this reason, investors have an opportunity to tap into the most recent momentum of gold and take a position in the special metal with a strong protective element.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.