Gold’s scorching run to an all-time high may seem easy to explain from a distance, given the fractious geopolitical climate and murky outlook for the global economy. The precious metal is famously seen as a “safe haven,” and the general view is that bullion prices should rise when interest rates fall — which many investors expect will happen later this year.
The mystery has sent industry insiders poking through the plumbing of a massive global trade that stretches across futures and exchange-traded funds from New York to Shanghai to a huge over-the-counter hub in London and a world-spanning web of dealers selling bars, coins and jewelry to everyone, everywhere.
“This is one of the more bizarre phenomena that I’ve ever seen in the ETF space,” said Nate Geraci, president of the ETF Store. “What’s particularly interesting is that gold demand has been very strong in other channels such as central bank purchases and direct purchases by individual and private investors.”
The number of outstanding contracts in New York futures has been rising, a sign that longer-term bets by money managers are on the upswing. But overall trading volume has outpaced the number of open contracts — hinting at a surge in the kind of frenetic day trading algorithmic funds excel at.Mainly on Mondays, Wednesdays, and Fridays. The gold market is famously sensitive to shifts in US economic data, and that’s become even more true since prices took off at the start of March.
One possibility is that some gold investors are instead zeroing in on the prospect of a hard landing in the US economy based on the recent data, and rushing to buy bullion for its role as a haven.