Trading in gold options is signaling that investors are preparing for declines in prices as the Federal Reserve concludes its two-day meeting.
A put giving owners the right to sell July futures at $1,175 an ounce, Tuesday’s most-traded option, headed for a second day of gains. Gold settled at $1,180.90 in New York that day. Three of the four options contracts with the most volume on Wednesday were also bets on declines.
Investors are shunning precious metals as the Fed debates the timing of the first increase for U.S. interest rates since 2006. Platinum extended a slump to a six-year low, and palladium fell for a fifth session. Higher rates curb gold’s allure because it doesn’t pay interest like competing assets, such as new bonds.
“This market is reflecting the view that prices will remain lower this year,” Fain Shaffer, president of Infinity Trading Corp. in Indianapolis, said in a telephone interview. “The puts are winning since several strong economic data points are telling people that the rate hike is coming this fall.”
Gold futures for August delivery fell 0.5 percent to $1,174.60 at 10:56 a.m. on the Comex in New York, after falling 0.4 percent on Tuesday. The metal has dropped as Greece’s debt turmoil drove gains for the dollar, cutting demand for bullion as an alternative.
Aggregate trading was 60 percent below the 100-day average for this time, according to data compiled by Bloomberg.
“There is a lot of incentive to remain on the sidelines with high event risk from the Fed meeting and the Greek talks,” Thorsten Proettel, a commodity analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany, said in a telephone interview. “I don’t expect the Fed will jump this time, and Greece will probably achieve a last-minute deal, but the risk of volatility may deter some.”
While futures traders predict policy makers will leave the Fed benchmark rate at a record low, there may be more signals on when the first increase will occur. The central bank’s benchmark rate has been near zero percent since 2008.
On the New York Mercantile Exchange, palladium futures for September delivery dropped 0.5 percent to $729.30 an ounce. A close at that price would leave the metal more than 19 percent below the closing high of $909.55 on Aug. 29. A 20 percent drop would mean a bear market.
Platinum futures for July delivery declined 0.5 percent to $1,074.20 an ounce. The metal touched $1,071.70, the lowest since April 2009.
On the Comex, silver futures for July delivery fell less than 0.1 percent to $15.96 an ounce.