Traders are expecting a rise in gold prices after it reached a 12-month high this week, with investors speculating that the US Federal Reserve's interest rate hikes are over and seeking safe havens amid banking sector turmoil.

Gold spot prices this week touched $2,000 per ounce for the first time since the immediate aftermath of Russia's invasion of Ukraine. Prices retreated after testing the level several times throughout the week, but trading in options contracts linked to the metal indicates that many investors anticipate a more sustained rally in the coming weeks.

Financial investors typically place bets on gold prices through futures contracts, exchange-traded funds, or options contracts tied to them. Aakash Doshi, head of commodities for North America at Citigroup, noted a surge in investor activity across all three channels in recent weeks.

Doshi stated that the primary catalyst has been the stress in the regional banking system in the US, resulting in mostly one-directional buying.

March is expected to be the first month of net inflows into gold ETFs in 10 months, while the volume of bullish options bets tied to the funds has neared record levels.

Call options grant investors the right to purchase assets at a predetermined price at a later date. The five-day rolling volume of call options on the SPDR Gold Trust ETF has increased more than fivefold since the beginning of the month. The ratio of calls to puts — options used to make bearish bets or protect against downside risk — has also shifted to extreme levels, indicating a consensus among traders that prices will rise.

Similar interest has been observed in CME's gold futures and options tied to them, including deep 'out of the money' options, which would only pay out if the gold price reaches new all-time highs.

The banking crisis that started earlier this month with the collapse of Silicon Valley Bank and Signature Bank created both short- and longer-term catalysts for an increase.

Suki Cooper, a precious metals analyst at Standard Chartered, said that in the days following the collapse of SVB and Signature, there was a significant increase in 'tactical' positioning as traders sought assets considered safe havens during crises.

In past crises, this impact has been counterbalanced by other investors being forced to sell gold to meet margin calls on other investments. However, Cooper said that months of investor outflows meant positioning was light at the beginning of the latest issues, reducing the amount of further selling.

Simultaneously, the bank crisis has led investors to reevaluate the outlook for interest rates in the US. Rising rates over the past year had diminished the appeal of yield-free gold investments, but investors have become increasingly convinced that the Fed's latest rate hike earlier this week will be its last.

Cooper said that if we are at the end of a rate-hiking cycle, there is much more scope for upside.