Gold traders are setting their sights on $1,400 an ounce, a price not reached since September, as the worst standoff between the West and Russia since the end of the Cold War increases demand for the metal as a haven.
The most-traded bullion option on the Comex yesterday was a call giving owners the right to buy at $1,400 by April, with an estimated 4,547 lots changing hands. That’s almost double the amount of the next most-active option and compares with an average volume of 427 in the past month.
Investors are once again flocking to the precious metal, leaving prices poised for the biggest quarterly gain since 2007. Russia’s growing military presence in Ukraine is the latest sign of global turmoil fueling the rally after slowing U.S. economic growth and slumps in emerging-market currencies. Money managers are the most bullish on gold in 14 months, government data show. Bullion tumbled 28 percent in 2013, the biggest drop since 1981.
“Worries about a possible conflict are very constructive for gold, and we are seeing momentum traders come in,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets, said in a telephone interview. “The mixed economic numbers out of the U.S. and concerns about slowdown in other parts of the world have boosted demand for a safe-haven asset.”
Gold futures for April delivery gained 2.2 percent yesterday to $1,350.30 on the Comex, after touching $1,355, the highest since October. The contract dropped 1.3 percent to $1,332.60 at 8:30 a.m. in New York today. The April $1,400 call surged 240 percent yesterday to $5.10.
Bullion jumped 11 percent this year, the third-biggest gain among the Standard & Poor’s GSCI Spot Index of 24 commodities, which climbed 3.4 percent. Arabica coffee surged 73 percent in New York, while hogs gained 26 percent in Chicago.
Holdings in gold-backed exchange-traded products rose 6.9 metric tons to 1,746 tons in February, the first monthly gain since December 2012, data compiled by Bloomberg show. The U.S. economy grew at a 2.4 percent annualized rate in the fourth quarter, compared with the government’s first estimate of 3.2 percent issued in January, the Commerce Department said Feb. 28.
Gold plunged into a bear market in April as some investors lost faith in the metal as a store of value amid an equity rally and muted inflation. Last year, ETP assets dropped 33 percent, wiping $73.4 billion from the value of the funds. Prices also fell as the Federal Reserve prepared to slow the pace of monetary stimulus. The central bank cut monthly bond purchases in December and January by $10 billion, leaving purchases at $65 billion.
“We saw a classic risk-off day, with money moving towards all safe-haven assets,” Michael Gayed, the chief investment strategist who helps oversee $250 million at New York-based Pension Partners LLC, said in a telephone interview. “Once the panic subsides, we may see gold become a bit vulnerable and lose some ground.”
Analysts are split on the outlook for prices. Goldman Sachs Group Inc. last month reiterated its forecast for the metal to reach $1,050 by the end of the year. Westpac Banking Corp. sees bullion dropping to $1,011 in December. UBS AG said Feb. 19 that the commodity has “started to shed its stigma” and increased its 2014 forecast to $1,300 from $1,200.
Gold surged 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system to boost growth. Prices rose to an all-time high of $1,923.70 in September 2011. Fed Chair Janet Yellen said last week that the central bank is “open to reconsidering” the pace of cutbacks in asset purchases should the economy weaken. Policy makers next meet March 18-19.
Hedge funds and other money managers boosted their gold net-long position, or bullish bets, by 25 percent to 113,911 contracts in the week to Feb. 25, the highest since December 2012, U.S. Commodity Futures Trading Commission data show.
“The fundamentals are very supportive, and gold looks good technically as well,” Bill O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a telephone interview. “If the market is able to hold on to its gains in the next few sessions, we could rise to $1,400.”
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