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Gold Volatility Slumps to Lowest Since 2010 Before Fed

Photographer: Brent Lewin/Bloomberg

Argor Heraeus SA-branded one kilogram gold bars are arranged for a photograph at the Chinese Gold and Silver Exchange Society in Hong Kong. Bullion, which slid last year by the most since 1981 as some investors lost faith in the metal as a store of value, rebounded 11 percent in 2014 as the global expansion faltered and tensions escalated in Ukraine. Close

Argor Heraeus SA-branded one kilogram gold bars are arranged for a photograph at the... Read More

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Photographer: Brent Lewin/Bloomberg

Argor Heraeus SA-branded one kilogram gold bars are arranged for a photograph at the Chinese Gold and Silver Exchange Society in Hong Kong. Bullion, which slid last year by the most since 1981 as some investors lost faith in the metal as a store of value, rebounded 11 percent in 2014 as the global expansion faltered and tensions escalated in Ukraine.

Gold volatility slumped to a 44-month low before the Federal Reserve concludes a two-day policy meeting.

The 60-day historical volatility dropped to 11.4, the lowest since Oct. 18, 2010, according to data compiled by Bloomberg. Gold futures traded in a range of $45 an ounce this month, compared with $74 in May.

The value of exchange-traded funds backed by gold has contracted by $2.57 billion this quarter, and open interest in Comex futures fell to a five-year low in April. The precious metal’s appeal as an alternative investment faded as U.S. equities surged to a record and the Fed cut monetary stimulus.

“There is very little interest in gold as the equity market continues to march ahead,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “Many people are steering clear of gold because they know that tapering will continue.”

Gold futures for August delivery rose less than 0.1 percent to $1,272.50 an ounce at 12:32 p.m. on the Comex in New York. Yesterday, the price fell 0.3 percent to end a six-session rally, the longest since February.

On June 16, gold reached $1,285.10, the highest since May 27, as escalating violence in Iraq and worsening relations between Ukraine and Russia spurred demand for a haven.

Haven Premium

“The safe-haven premium was very short-lived, and this year we have not seen any big movements in gold even as violence in Iraq erupted or tension between Russia and Ukraine escalated,” Cordier said.

The metal climbed 70 percent from December 2008 to June 2011 and jumped to an all-time high of $1,923.70 on Sept. 6, 2011, as the Fed bought debt and held borrowing costs near zero percent.

Last year, gold fell 28 percent last as some investors lost faith in the metal as a store of value amid concern that the Fed would taper stimulus.

The Federal Open Market Committee cut asset purchases at each of the past four meetings as the economy gained. Policy makers may decide today to taper monthly bond buying by another $10 billion. The central bank will probably raise its benchmark interest rate faster than money-market investors forecast, a Bloomberg survey showed.

Yellen Speaks

“Gold prices are not straying too far from unchanged” in early trading, Jim Wyckoff, a senior analyst at Kitco Metals Inc., a research company in Montreal, said in a report. “The marketplace is on hold ahead of what is arguably the most important economic event of the week, if not the month: the FOMC statement and Fed Chair Janet Yellen’s press conference.”

The World Gold Council said today that the industry will discuss changes on July 7 to the century-old fixing benchmark used by mining companies to central banks to trade and value the metal in London.

A similar silver-fixing review will end in August, and companies are due to make proposals this week for an alternative mechanism. Regulatory focus on financial benchmarks is intensifying after rigging was uncovered in everything from interbank lending rates to currencies.

Silver futures for July delivery rose 0.1 percent to $19.75 an ounce on the Comex. The price rose for the eighth straight session, the longest rally since Feb. 18. The metal’s 60-day volatility dropped to the lowest since September 2005.

Strike Demands

On the New York Mercantile Exchange, platinum futures for July delivery rose 0.5 percent to $1,450 an ounce, heading for the third straight gain. Palladium futures for September delivery increased 0.9 percent to $824.15 an ounce.

A deal to end a 20-week strike by miners in South Africa will be delayed after a labor union made fresh demands, according to two people familiar with the talks.

Proposals by the Association of Mineworkers and Construction Union, which represents 70,000 workers, includes one-time payment of 3,000 rand ($279) for striking workers.

On June 12, the association said an accord was reached “in principle” with companies to end the dispute.

South Africa is the world’s largest platinum producer and trails Russia as the top source of palladium.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Patrick McKiernan

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