Trading in bullion options show the biggest rally in nine months has more to run after some contracts betting on higher prices surged by the most since 2012 yesterday. Fed Chair Yellen’s outlook for low U.S. interest rates is bringing investors back to gold after a measure of volatility sank to the lowest since 2010 earlier this week.
This year’s surging equity markets left the metal out of favor as open interest in Comex futures slumped to a five-year low in April and holdings in global exchange-traded products backed by bullion reached the smallest since 2009 this month. Now, demand is rebounding as lower borrowing costs revive the threat of inflation and escalating violence in Iraq boosts the appeal of a haven.
“Yellen’s words worked like magic for the gold market, which has otherwise been very lackluster,” Dan Denbow, a portfolio manager at the $1 billion USAA Precious Metals & Minerals Fund in San Antonio, said yesterday. “The political turmoil in Iraq and Ukraine continues to provide support, but the main reason for the rally is Yellen.”