Gold Price Swings Ease as Investors Seek Clues on Tightening

  • Strong labor market, drop in durable goods muddy gold outlook
  • Investors still buyng gold ETFs, with holdings at 2-year high

Are investors losing interest in gold again?

The metal’s 30-day historical volatility fell to the lowest since Feb. 10 and open interest slipped from the highest since September 2011. Since March 7, gold futures managed to post gains only three times. The Bloomberg Dollar Index rose for a fifth straight session, the longest streak in two months, reducing the appeal of dollar-denominated commodities.

Bullion has rallied 15 percent this year, the best performance among 22 raw materials on the Bloomberg Commodity Index, topping gains in Treasuries, the dollar, equities and high-yield and investment-grade corporate bonds, as investors sought a haven amid financial turmoil that the Federal Reserve said was among the risks to the U.S. economy. Today, traders are weighing U.S. economic reports and comments from the Fed that they may raise interest rates in the next few months.

“The market is definitely confused as to the time frame in which to expect these rate hikes,” Tim Evans, the chief market strategist at Long Leaf Trading Group in Chicago, said in a telephone interview. “The labor market has been performing relatively well. However, the broader economic trends are not as strong and it leaves the market very uncertain” on the outlook for the rate path and the investment demand for gold, he said.

Gold futures for June delivery fell 0.2 percent to settle at $1,223.50 an ounce at 1:45 p.m. on the Comex in New York, posting a 2.5 percent loss this week, the worst for a most-active contract since Nov. 6.

Orders for durable goods in the U.S. fell in February for the third time in four months, reflecting a broad-based slowdown. At the same time, a Labor Department report showed filings for unemployment benefits rose less than expected, signaling a firm labor market. Investors have been sifting for clues on the Federal Reserve’s next move, and Federal Reserve Bank of St. Louis President James Bullard said Thursday that the next rate increase “may not be far off.”

Traders are pricing in a 75 percent chance that the Fed will raise borrowing costs by year-end. That’s a big turnaround from a month ago, when the probability was seen at just 42 percent. Reduced expectations for a move had pushed the dollar down and helped drive gold to the highest price in a year earlier this month.

‘Crucial Driver’

“The dollar is still the most crucial driver for gold,” said Georgette Boele, a strategist at ABN Amro Group NV in Amsterdam and who expects the metal to climb to $1,370 by year-end. “Short-term sentiment is a bit negative for the metal.”

Bullard said Wednesday that a move may be warranted next month amid a broadly unchanged economic outlook and prospects of inflation and unemployment exceeding targets. That echoes similar comments by other regional presidents earlier this week.

Investors keep buying the metal through exchange-traded products. Holdings rose for a seventh session to 1,768.1 metric tons on Wednesday, the highest since March 2014, according to data compiled by Bloomberg.

In other metals:

  • Silver futures fell 0.5 percent on the Comex, while palladium and platinum futures declined on the New York Mercantile Exchange.
  • A Bloomberg Intelligence index of 14 senior gold miners recovered some of the ground lost in a 5.8 percent plunge on Wednesday.
Before it's here, it's on the Bloomberg Terminal. LEARN MORE