Photographer: Waldo Swiegers/Bloomberg

The Largest Gold ETF Highlights Bullion Traders' Confusion

Updated on
  • Fund’s put-to-call ratio is at the highest since August 2015
  • Investors have poured money into SPDR for five straight weeks

Gold traders are getting pulled in two different directions.

On the one hand, investors are awaiting clues this week on the timetable for reducing the U.S. Federal Reserve’s balance sheet, which could curb demand for gold. Rising equities are also hurting the metal’s appeal. On the other hand, mounting U.S.-North Korea tensions and concern over the economic outlook reinforce the case for owning bullion, which has gained 14 percent this year.

The dilemma is playing out in exchange-traded funds. The put-to-call ratio of SPDR Gold Shares, the largest ETF backed by the metal, is the highest in two years, signaling bearish sentiment may be gaining momentum. At the same time, investors poured $177 million into SPDR Gold last week, a fifth straight weekly inflow, while hedge funds and other large speculators boosted bullish bets in gold futures to the highest in a year.

“This is the confusion for major traders,” George Gero, a managing director at RBC Wealth Management, said in a telephone interview. “You’ve got a lot of worries this week. It means more people have more fears than before and they’re protecting positions.”

Gold futures for December delivery retreated 1.1 percent to settle at $1,310.80 an ounce at 1:40 p.m. on the Comex in New York, extending a 1.9 percent loss last week that was the biggest for a most-active contract in more than two months.

Prices of the metal have rallied this year in part because investors have sought haven assets amid rising geopolitical tensions. North Korea has advanced its nuclear program and conducted missile tests despite international condemnation led by the U.S. On Sunday, Secretary of State Rex Tillerson said on CBS’s “Face the Nation” that the U.S. is prepared to use military force if diplomatic efforts fail to end the nuclear standoff with North Korea.

Bullish Bets

Money managers boosted their net-long position in gold futures and options contracts by 6.1 percent in the week ended Sept. 12, according to Commodity Futures Trading Commission data.

Bullion climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent. That era of easy money is ending as the Fed raises borrowing costs and policy makers prepare to shrink the $4.5 trillion balance sheet.

While traders are pricing in a less-than 2 percent chance that the Fed will raise rates this week, economists surveyed by Bloomberg saw a 71 percent chance on average that policy makers will announce this week the timing for reducing the Fed’s balance sheet. That’s up from 51 percent odds in July for an announcement at the this week’s meeting.

Gold traders and analysts surveyed by Bloomberg turned bearish for the first time in 13 weeks as dollar recovers and U.S. stocks reached record highs.

— With assistance by Catarina Saraiva

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