Gold Holds Gains as Investors Ask `Now What' for U.S. Fed Rates

Can the U.S. Economy Survive Fed Tightening?
  • Options expiry set for Dec. 28 seen adding to volatility
  • Net-short positions were at record last week, CFTC data show

Gold futures climbed to the highest in more than a week, extending a recovery from near the lowest in five years, as prices gyrate with traders assessing the outlook for further increases in U.S. interest rates.

The metal’s 30-day historical volatility jumped to the highest since Nov. 3. Money managers raised their net-short positions to the highest ever in the week ended Dec. 15. Gold advanced as some investors closed out those bets before options expire and ahead of the Christmas holiday this week.

“It’s a short-week, so traders are covering shorts,” George Gero a vice president of global futures at RBC Capital Markets in New York, said in a telephone interview. “With options expiring Dec. 28, you can see more volatility in gold. If we get over $1,100, it will attract the attention of asset allocators.”

Gold futures for February delivery gained 1.5 percent to $1,080.60 an ounce at 1:50 p.m. on the Comex in New York, after touching $1,081.40 the highest since Dec. 9. The metal has posted two straight weekly losses, and fell the most since March on Dec. 17, a day after the Federal Reserve tightened U.S. monetary policy.

Investors bought 18.4 metric tons of gold through exchange-traded products on Friday, the most since 2011, data compiled by Bloomberg show. Holdings reached 1,458.2 tons on Thursday, the lowest since 2009. Seventeen of 28 traders and analysts surveyed by Bloomberg said the precious metal will rise next year, with a median year-end estimate at $1,200 an ounce. Still Barnabas Gan and Robin Bhar, the most accurate forecasters, are convinced futures will keep falling in 2016.

“What happens in the U.S. doesn’t erase what’s happening in the rest of the world, where there is still accommodative monetary policy which should be good for gold,” Simona Gambarini, a London-based analyst at Capital Economics Ltd., said by telephone. “There are a lot of risks out there and so there’s a need for diversification into gold at a central bank level and retail level.”

Silver futures also advanced on the Comex, while platinum rose and palladium declined on the New York Mercantile Exchange.

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