Rally erupted in gold market days after bears made big bet

For a measure of how much last week’s surge in gold prices may have caught the market by surprise, consider that hedge funds had just made their biggest-ever bearish wager on the metal days before.

Speculators boosted their net-short position in bullion futures and options to the largest since at least 2006 in the week ended Tuesday, according to government data released three days later. By Thursday, gold was extending a rally, climbing by the most since 2016 as a rout in global stock markets and weaker-than-expected U.S. inflation raised bets that the Federal Reserve will slow the pace of interest-rate increases.

The abrupt turnaround snapped gold out of its recent doldrums. The metal had been stuck in a rut as surging stock markets and the prospect of tighter U.S. monetary policy torpedoed any small rally bulls could muster. Higher rates generally curb the appeal of bullion, which doesn’t pay interest. Gold prices had held near $1,200 since late August, with a measure of volatility sliding to an eight-month low earlier this month.

“Sentiment for gold should improve given the risk rising in the equity market,” said Maxwell Gold, a director of investment strategy at Aberdeen Standard Investments, which oversees about $730 billion. “Right now, is an attractive time to strategically add positioning for gold investment to hedge against concerns on equity volatility and add to diversification.”

On Wednesday, buyers piled into exchange-traded funds backed by the metal at the fastest pace since March as appetite for riskier assets waned amid stock market turmoil. Gold posted its fourth weekly gain in five.

Gold futures for December delivery advanced 0.9 percent to $1,232.80 an ounce at 10:29 a.m. on Monday in New York, after reaching $1,236.90, the highest for a most-active contract since July 31.

(By Susanne Barton and Marvin G. Perez)