Busy news and economic calendar could drive gold prices this week

Goldhub blog

Busy news and economic calendar could drive gold prices this week

Adam Perlaky
Manager of Investment Research
World Gold Council

Posted:

Gold prices:

  • Gold fell last week (XAU -1.2%, LBMA -1.4%) as the stock market rallied and yields rose the most in six years.
  • Gold fell back to the important level of ~$1,500 which could act as support in the interim.

 

Potential gold price drivers this week:

  • Oil had the largest intraday move in history last evening following the Saudi Arabia oil field bombing which impacts 5% of the global oil supply; this has gold bid with concerns about potential retaliatory actions.
  • Rate decisions from the FOMC, BOE and BOJ could drive gold prices; US markets are pricing in 25bps cut.
  • Markets will continue to weigh news out of the UK where PM Boris Johnson is expected to meet with EU officials on Brexit.
  • Quadruple-witching in the US on Friday, when expiration on futures and options on indices and stocks occur on the same day; this is often met with increased volatility and volumes.

 

 

Liquidity:

  • COMEX net longs fell sharply from 1,134t to 963t, still near all-time highs and well above long-term averages as the price of gold fell for a second week in a row.
  • Gold trading volumes also fell sharply last week as we received some late August OTC data; levels went from $238bn a day to $209bn a day; this remains 83% above the 2018 average. 

 

COMEX Net Longs

Source: CFTC, Bloomberg

 

Gold-backed ETF Flows:

  • $760mn worth of outflows globally last week mainly coming from the US (-$610mn) and Europe (-$178mn). Other regions had minimal flows.
  • Flows are mostly flat for the month (+$187mn) with all-regions except Europe with small inflows.

 

Gold-backed ETF flows last week

 

Source: Bloomberg, World Gold Council

 

Options and volatility:

  • $2.8tn worth of gold futures option open interest at the $1,500 strike over the next two months; many multiples higher than traditional amounts. $2tn at $1,550 and $2.4tn at $1,600 which was added last week.
  • Implied and realized volatility both fell last week as gold hovers around $1,500.
  • Call skew increased near the one-year highs as investors likely added to bullish bets following the pullback.
  • Put skew increased sharply as investors began to buy downside protection.

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