Is the source of gold's recent rally due less to the Middle East and more to other situations?
Gold bugs are starting to gain hope that the last three months were just a bad dream.
Having broken above $1,400 yesterday, the yellow metal is now trading where it was back in May.
To be sure, though, open interest in traded gold is less than it was in May, according to the Commodity Futures Trading Commission (CFTC). On May 14, the CFTC counted 443,806 contracts in gold but, last week, there were 385,410. Each contract is made up of 100 ounces.
Since May, “managed money” (hedge funds and the like) have decreased their short positions from 73,149 contracts to 56,067, or about $2.4 billion worth. However, they are long 104,483 contracts, which is 8,050 ($1.14 billion) less than they were in May.
What’s causing the run-up? That depends on who you ask.
Some of the recent headlines suggest it’s due to the flare-up in Syria. The speculation is that the US may take military action against one of Iran’s staunchest allies after the Secretary of State John Kerry claimed the Syrian government used chemical weapons against its civilians. Gold would be considered a safe haven. With a population of 22.5 million people, Syria’s Gross Domestic Product is under $74 billion. For comparison, Arkansas’ Gross State Product is $94 billion with a population just shy of 3 million.
Another cited culprit is the devalued Indian rupee. The currency of the world’s second-most populous country has devalued more than 20% this year versus the US dollar. Some panicked Indian investors have been purchasing gold to offset their currency’s weakness. October gold contracts are trading over $1,555 per ounce on the Mulit Commodity Exchange of India in Mumbai.
But are there other reasons why gold is trading where it is today?
John Stephenson, portfolio manager at First Asset Investment Management, says the fundamentals don’t justify gold’s recent price rise. Meanwhile, Talking Numbers contributor Enis Taner, Global Macro Editor at RiskReversal.com, looks at the charts on gold to see if there’s a technical reason gold has risen and where it’s going next.
What’s causing bullion to shine again and will it keep going? Watch the video above to hear Stephenson and Taner analyze gold.
- Commodity Markets