(Bloomberg) – Traders are abandoning bearish bets on gold as the yellow metal rises to all-time highs.
Short interest as a percentage of the outstanding shares in the $ 75 billion SPDR Gold Shares publicly traded fund, ticker GLD, is near the lowest level since July 2009, according to data from IHS Markit Ltd. Meanwhile, the Bullish call options volume on the ETF posted its second biggest jump last week before the bullion climbed to a record $ 1,946 an ounce on Monday.
What started as a haven offer amid the coronavirus pandemic has been accelerated by central bank stimulus, as falling real interest rates, which eliminates the effects of inflation, lead investors to gold. . The bullish momentum along with the falling dollar has fueled “surprising” speculation in precious metals, according to analysts at Sundial Capital Research Inc.
“The popular narrative is that government monetary support will lead to inflation and currency degradation, so buy precious metals as hedging,” Troy Bombardia of Sundial wrote in a note Monday. “Regardless of whether this theory is right or wrong, the fact is, traders are bullish on metals.”
Gold prices rose as much as 2.3% on Monday when the Bloomberg Dollar Spot Index sank to its lowest level since September 2018, and the dollar fell against all its peers in the Group of 10. Hedge funds and Other big speculators have amassed the largest net short position in the dollar since May 2018, according to the latest data from the Commodity Futures Trading Commission. This is largely due to the rise in US virus cases coupled with the Federal Reserve’s easing bias having abolished the dollar’s appeal as a safe haven, said Esther Reichelt of Commerzbank AG.
“The possibility of further expansionary adjustments to the Federal Reserve’s monetary policy, as well as the search for alternative safeguards are the main driver of this movement,” said Reichelt, currency strategist.
Demand for gold has been insatiable in the $ 4 trillion ETF market. Total gold holdings in ETFs rose to a record last week and posted an 18th consecutive week of entries, according to data compiled by Bloomberg.
Silver was also involved in the action, with the iShares Silver Trust, the $ 12.6 billion SLV ticker, absorbing a record weekly entry.
The cash rush in gold ETFs is evidence that retail investors are driving the record bullion race, according to analysts at JPMorgan Chase & Co. ETFs are a popular choice for individual investors seeking exposure to commodities, which could not being able to invest in futures contracts or receive physical gold.
“The purchase of physical gold ETFs, one of the main vehicles used by retail investors, has increased considerably in recent weeks,” analysts such as Nikolaos Panigirtzoglou wrote in a July 24 note. That makes “this year already the strongest on record with five months remaining.”
(Update prices in the fifth paragraph).
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