Gold price makes a break for $1,200
On Wednesday, gold made a bold move higher advancing to a near four-month high as large futures investors catch up to a turnaround in sentiment towards the metals sector and amid fresh indications that a limp US economy may push the first rate hike in nine years further into the future.
On the Comex market in New York, gold futures with December delivery dates traded up 2% or $22.90 at $1,188.40 in afternoon dealings. The gold price rose steadily throughout the day in massive volumes of nearly double the usual daily average, hitting the highest since June 22.
Gold's leg up on Wednesday came on the back of a deflationary reading for factory gate prices with PPI at –0.5% and weaker than expected retail sales, a key driver of the world's largest economy. US bbusiness inventories also disappointed adding to indications of an economy stagnating.
Gold is now up more than 7% from where it was trading before the US Federal Reserve at its September meeting decided to hold rates steady. The last time rates were hiked was June 2006 and Fed minutes released last week suggested that the US economy will grow well below historical averages for the rest of the decade.
The dollar and gold, and bond yields and gold, have strong negative correlations and on Monday the greenback fell against the currencies of its major trading partners.
Hedge funds were wrong-footed by the decision to keep interest rates near zero reducing bullish bets to more than five year lows ahead of the Fed decision.
But sentiment has now turned and according to the CFTC's weekly Commitment of Traders data for the week to October 6 large speculators on Comex – referred to as "managed money" – added nearly a fifth to their bullish positions from the week before.
The week before hedge funds more than doubled net longs which now stand at just under 5 million ounces, the highest since April. Speculators also cut back on short positions – bets that gold could be bought cheaper in the future – reducing overall positions to 7 million ounces, down from record highs above 11 million ounces set in July.
Gold stocks responded to the stronger gold price, ripping higher led by a rampant Barrick Gold with the world's top producer adding 9% in New York and bringing the Toronto-based company's gains from September lows to an eye-watering 38%.