Gold Trapped in Listless Trade May Signal Volatile Awakening

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Gold traders should get ready for a change of pace in their markets.

Prices have seesawed for the past two months, leaving the metal trapped in the tightest trading range in two years, according to data compiled by Bloomberg through the end of last week. That’s historically a sign of more volatility to come. When similar periods of calm blanketed the market, the metal swung 3.3 percent on average in the five days after breaking out of the band, almost twice the usual weekly change.

Gold moved around $1,200 an ounce as bullish catalysts, such as signs of faster inflation, were offset by speculation the Federal Reserve will soon raise interest rates. While the weaker dollar usually draws buyers to gold, there’s also less demand for haven assets with equities near all-time highs.

“The gold market has felt a bit like the swinging ship ride you get at amusement parks,” Howard Wen, a precious metals analyst at HSBC Holdings Plc, said by phone from New York. “If it breaks through, we could see the momentum players come through on either side. You will always see some investors who are willing to follow clearly defined trends.”

For 10 days in April, prices alternated between gains and losses. Gold was within a 5 percent band from March 23 through May 15, the narrowest trading range since 2013, according to data compiled by Bloomberg that compared similar time periods.

Prices dipped as low as $1,170.52 an ounce on May 1 and rose as high as $1,227.26 on May 14, a range of about $57. Gold traded at $1,220.86 as of 7:16 a.m. in London.

Price Swings

Gold has traded in a similarly tight range in three instances in the past five years. In each case, the metal declined over five days after prices moved beyond the 5 percent band, with losses of 2.4 percent in 2012, 3.6 percent in 2013 and 3.8 percent in 2014, data compiled by Bloomberg show. The average weekly swing is 1.7 percent since 2010.

This time, the move may be in the opposite direction. Gold last week rallied the most since January and climbed above its average price from the past 200 days. Hedge funds are beginning to show an appetite for the metal, according to Mark O’Byrne, the executive director of Dublin-based brokerage GoldCore Ltd. Business was “very quiet” when prices didn’t move, he said.

“They buy when there is a break above a range, which we appear to be doing now,” O’Byrne said on May 14. “Our phones have been ringing off the hook.”

Trading Volume

The lack of direction in gold hasn’t trimmed trading volumes on the Comex in New York, with a daily average of 170,000 contracts changing hands since March 20, in line with the 100-day mean. One contract represents 100 ounces.

Assets in gold-backed exchange-traded funds are little changed since late March. If prices keep rising, cash will start flowing into the funds, according to Neil Meader, a London-based precious metals consultant at Metallis Consulting Ltd.

Georgette Boele, a strategist at ABN Amro Bank NV, isn’t so bullish. When gold ends the trading range, the metal will decline, she said, citing the stronger dollar and improving U.S. economic data.

“Precious metals are range bound at the moment because different drivers are offsetting each other, but going forward, one of these drivers will win,” Boele said by phone from Amsterdam on May 7. “It is a tough battle. The breakout is going to be even more violent.”

(An earlier version of this story corrected how low gold prices fell this year.)

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