Investor scepsis affects gold market as open interest declines
INVESTORS are growing more sceptical of gold’s lasting lustre.
Hedge funds and other speculators cut their wagers on a bullion rally for the fourth time in five weeks. As traders tire, the metal’s 30-day historical volatility has dropped to the lowest since November. Open interest is also on the decline.
After stunning gains to start the year, bullion has started to lose its momentum. Prices are down about 1 percent in August as the US economy picks up steam, damping demand for a haven. American payrolls surged in July and wages climbed, pointing to renewed optimism that the jobs market would sustain consumer spending in the second half of 2016.
“People don’t believe in the gold rally,” said Frank Holmes, the chief executive of US Global Investors in San Antonio, Texas. “You can see this last dip in gold, the employment numbers are so good. When there is good economic data out, rates rise and the price of gold goes down.”
The net-long position in gold futures and options fell 4.3 percent to 255 773 contracts in the week to August 9, according to Commodity Futures
Trading Commission data released three days later. The holdings have dropped 11 percent since July 5, when they reached an all-time high of 286 921 contracts.
Bullion has retreated 2.5 percent since reaching a two-year high on July 6 on the Comex in New York to settle at $1 343.20 (R18 048) an ounce on Friday. Open interest, a tally of outstanding contracts in Comex futures, has slumped 13 percent since touching a July peak.
Interest in gold has diminished as equity markets took off. The Standard & Poor’s 500 index of shares reached a fresh all-time high last week. Assets in SPDR Gold Shares, the world’s biggest exchange-traded product backed by the metal, have declined in three of the past five weeks.
Job market
US jobless claims have been holding near four-decade lows, highlighting strength in the job market that signals the economy would probably be resilient in the face of interest rate increases by the Federal Reserve.
Higher rates cut the appeal of gold, which does not pay interest or offer dividends.
Traders are betting that there is a 42 percent chance the Fed will raise rates by the end of the year, up from 12 percent at the start of July.
A probable trio of rate hikes from the Fed to the end of 2017 means there’s little room for it to rally further from near a two-year high, according to Pictet Wealth Management.
Bullion is not likely to break higher than $1 430, and may stabilise around $1 250 to $1 300, said Luc Luyet, a currencies strategist at the wealth management arm of the Pictet Group.
The recent step back from gold is a change of course for investors who were stocking up on bullion earlier this year. Funds have been betting on price gains since they turned net long on the metal in January, and prices are still up 27 percent this year.
Global holdings in bullion ETPs reached a three-year high last week.
The yellow metal’s prices did stage a short-lived comeback on Friday, following the release of disappointing US data that weakened the case for more rate hikes.