Investor Interest in Gold Waning With Fed Rate Increase Looming

Gold Inches Higher for a Second Day
  • Tally of outstanding contracts slip to lowest since April 18
  • Money managers cut wagers on a price rally by most this year

There’s one more indicator signaling investors are beginning to lose interest in gold again.

Open interest, a tally of outstanding contracts in futures on the Comex in New York, fell 1.5 percent on Wednesday to the lowest since April 8. In the week ended May 24, money managers cut their net-long positions in gold by 26 percent, the most this year.

In the U.S., where the Federal Reserve has been monitoring signs of economic resilience before deciding on the next increase in borrowing costs, filings for jobless benefits released Thursday fell for a third straight week. On Friday, Fed Chair Janet Yellen said an increase in interest rates would be appropriate if economic growth picks up and the labor market continues to improve. Higher rates damp the appeal of precious metals because they don’t offer yields or dividends.

“Open interest has been steadily declining and that’s because the funds have been fleeing ahead of the Fed rate hike,” George Gero, a managing director at RBC Wealth Management in New York, said in a telephone interview. “It’s no longer a question of if, but it’s a question of when for the rate hike. The jobless claims were actually better than expected, and there’s really nothing that the data-dependent Fed would change their minds about.”

Gold futures for August delivery fell 0.2 percent to settle at $1,212.60 an ounce at 1:42 p.m. on the Comex in New York after rising as much as 0.4 percent. Futures that climbed as much as 23 percent this year pared those gains to gains to 14 percent, as traders price in increasing odds that borrowing costs will rise by July. The next Fed is set on June 14-15.

In other ETFs and other metals:

  • Holdings in gold-backed exchange-traded funds added 4.28 metric tons to 1,847.2 tons as of Wednesday, data compiled by Bloomberg show.
  • Silver advanced on the Comex, while palladium and platinum slipped on the New York Mercantile Exchange.
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