Gold Traders Prepare for Rally on Bets Fed Will Wait to MoveBy and
Open interest in futures rises to highest since November 2012
Tally of contracts outstanding climbs as long wagers increase
If you’re looking for a sign on what gold investors are expecting from this week’s Federal Reserve meeting, look no further than open interest.
The measure, a tally of outstanding contracts, shows traders are holding more gold futures than at any time since 2012. It suggests investors are readying for a rally, expecting the Fed to signal this week that interest rates will stay low for longer, said George Gero, a vice president of global futures at RBC Capital Markets in New York.
“We’ve been building up open interest,” Gero said in a telephone interview from New York. “That’s a bullish indicator. People are going back to gold because of the likely decision” by the Fed.
Government data indicates that over the past five weeks long positions have surged while short wagers have slumped. Lower U.S. interest rates are a boon for gold because they keep the metal more competitive against assets that pay interest, such as bonds. If officials hold off on tightening monetary policy it also signals that the American economy is worsening, which makes bullion appealing as a haven asset.
There are other signs that investors are expecting the metal to make a comeback after the threat of higher rates dragged prices to a five-year low in July. Holdings in exchange-traded funds backed by gold climbed by 11 metric tons this month to 1541.1 tons, the biggest increase since February.
Futures in New York have gained 4.6 percent this month to $1,166.50 an ounce on Tuesday. Policy makers held interest rates steady at a meeting in September, citing global risks that threaten domestic growth and the central bank’s inflation target. While officials from Chair Janet Yellen to Vice Chairman Stanley Fischer said a rate increase may be warranted this year, traders in Fed-fund futures are pricing in the probability of liftoff at 35 percent by December, and an even lower chance of 4 percent at the two-day meeting this week that concludes on Wednesday.
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