Precious Metals Overview

Tuesday, June 26, 2012

Gold futures rallied Monday as investors adjusted their holdings ahead of gold options expiration Tuesday and on U.S. economic data pointing to weaker growth. The most actively traded contract, for August delivery, gained $21.50, or 1.4%, at $1,588.40 per troy ounce on the Comex division of the New York Mercantile Exchange. Gold’s rally benefited from investors looking to purchase long gold futures, or bets on higher prices, ahead of the Comex gold options expiration, said George Gero, senior vice president with RBC Capital Markets Global Futures. For many investors who had sold protective options around the psychologically important $1,600 level, these positions will turn into short July-delivery gold futures, or bets on lower gold prices, at the end of business Tuesday. These traders have rushed to purchase long gold futures in order to avoid large trading margin requirements by offsetting the short positions due to hit their account, Mr. Gero said. Investors are required to put down a deposit of $9,113, known as a trading margin, for each futures contract. “Most options traders do not want to put up that kind of margin money,” Mr. Gero said. Gold prices also caught a boost from data showing the Federal Reserve Bank of Chicago’s National Activity Index declined in May. The gauge of national economic activity fell to -0.45 last month from a revised 0.08 in April, indicating slowing growth. A negative reading for the activity index, a compendium of available and forecast economic data, points to below-trend growth. Gold prices have rallied on weaker U.S. economic data in recent weeks amid hopes that the Federal Reserve will pump more money into the economy. While the central bank disappointed investors last week, opting to restructure rather than expand its balance sheet, downbeat reports continue to stoke these hopes. “Our economists see this as the Fed buying time and weighing future options, and continue to expect further accommodation before year-end,” said Anne-Laure Tremblay, a precious metals analyst with BNP Paribas, in a note. Elsewhere, the amount of gold held as security by the Bank for International Settlements fell 7.5% to 19.6 billion worth of Special Drawing Rights for the financial year, the bank said in its annual report. About 9% of the SDR 215.4 billion in customer placements are currently held in gold, while the vast majority of customer placements are denominated in currencies, the BIS said.
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