Gold bulls found last week that what the US Federal Reserve gives, the Federal Reserve can take away.
Money managers increased net-long positions in the metal by the most since last month, after the central bank’s decision on Sept. 17 to hold US interest rates at record lows. A week later, Fed Chair Janet Yellen said policymakers are still on track to boost borrowing costs this year.
Gold futures, stuck near a five-year low, fell the most in two weeks on Friday as Yellen’s comments and a report showing faster-than-estimated US growth boosted prospects for the bank’s first monetary tightening since 2006. Higher rates dim the appeal of the metal because it does not pay interest. Citigroup Inc said further gold weakness was “delayed rather than avoided” by the Fed’s September decision, especially with a strong dollar eroding the value of holding bullion.
“The ingredients you need for a recipe for higher gold prices are just not there today,” said Walter “Bucky” Hellwig, who helps manage US$17 billion as a senior vice president at BB&T Wealth Management in Birmingham, Alabama. “Yellen’s statement that they’re going to probably raise rates by year-end implies a stronger dollar, which isn’t favorable for gold.”
Futures advanced 0.7 percent last week to US$1,145.60 an ounce on the Comex in New York. The Bloomberg Commodity Index of 22 components rose 0.9 percent, while the MSCI All-Country World Index of equities lost 2.5 percent. The Bloomberg Dollar Spot Index gained 1 percent. Bullion fell 0.7 percent to US$1,137.40 yesterday.
The net-long position more than tripled to 21,525 contracts in gold futures and options in the week ended Sept. 22, according to US Commodity Futures Trading Commission data released three days later. Bullish wagers climbed 6.1 percent, the most since Aug. 25.
When the US central bank left rates unchanged, policymakers cited concerns that financial-market turmoil and signs of a weakening Chinese economy could slow growth and push the Fed further away from their inflation goal. Yellen said in a speech on Sept. 24 that the reasons for the shortfall in inflation are transitory and will diminish as the effects of energy and import prices fade.
The tumult cited by the Fed in holding rates steady might lend support to gold, which is often considered a haven asset, as investors and central banks are still adding to their hoard.
As of Friday, holdings in exchange-traded funds backed by gold increased 10.4 metric tonnes since the Fed decision. China boosted its imports from Hong Kong last month as the surprise devaluation of the nation’s currency and inventory-building before the peak-consumption season spurred buying. Central banks in Russia, Kazakhstan and Belarus boosted gold reserves, according to data published by the IMF.
Options trading is showing bears might be starting to back away. The put-to-call ratio for SPDR Gold Shares fell last week to the lowest since 2012, data compiled by Bloomberg show.
“As uncertainty moves into the global financial markets, gold has got a bid,” said Chad Morganlander, a New Jersey-based money manager at Stifel, Nicolaus & Co, which oversees about US$170 billion. “We believe that will continue in the short-run as market instability continues over the course of the next several months.”
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