Sunday 22 July 2018

Rude awakening for 'crazy' gold markets in run-up to Fed chair Yellen's speech

Federal Reserve Chair Janet Yellen Photo: Reuters
Federal Reserve Chair Janet Yellen Photo: Reuters

Susanne Barton and Luzi Ann Javier

After weeks of relative slumber, gold traders were rudely awoken to a surge in volume and volatility. In a span of one minute, gold futures contracts equalling more than 2 million ounces traded - about 20 minutes before Federal Reserve chair Janet Yellen was to address a gathering of policymakers in Jackson Hole, in the US.

The episode jolted the market after a measure of 60-day volatility on the metal touched the lowest since 2005. Gold had been in quiet mode even amid political discord in Washington, concerns about rising US interest rates and tensions between the US and North Korea.

Yellen's speech, which lacked clear rate cues, did little to calm the price swings and damped expectations of a rate hike this year.

The market is "bipolar", Bob Haberkorn, a senior market strategist at RJO Futures, said.

"Between now and the end of the year, the story is going to be the Fed. The Fed was pretty hawkish coming into the year. Now it feels like they are backing away from September."

Gold futures for December delivery rose 0.5pc to settle at $1,297.90 an ounce at 1:36pm on the Comex in New York on Friday, after falling as much as 0.8pc and climbing 0.7pc to briefly pierce the $1,300 threshold.

After peaking at 21,256 gold futures contracts at 9:41am, trading fell to 6,683 contracts a minute later. On June 26, the market was also rattled when 18,149 lots equalling about 1.8m ounces of gold traded in just one minute.

It later fell back to 2,334 lots.

Federal Reserve Bank of Dallas President Robert Kaplan may have helped fuel the sharp move before Yellen's speech on Friday by saying the central bank can afford to be patient on raising interest rates even while noting it should shrink the balance sheet soon.

"Kaplan was dovish and sent it higher," Robin Bhar, an analyst at Societe Generale AG, said. "I don't know if anyone then got wind of what Yellen was going to say, but it then dropped like a stone. And then, when she didn't mention monetary policy, things started to stabilise again.

"These are crazy markets, and very difficult to trade," Bhar said of the gold moves. "The net result was extreme volatility."


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