EXPLOSIVE ACTION IN GOLD FUTURES MARKET

As gold has shot higher this summer amid worries over the U.S.-China trade war and signs of a possible recession, volume in the gold futures market is soaring, with many traders betting the precious metal will continue to rally. Net long positions for the COMEX gold futures contract (wagers that gold futures will move higher minus bets it will decline) were near all-time record highs in August, amounting to more than 1,000 metric tons of gold.  

A powerful rally that began in June, had gold up 17 percent by the end of August. Global trading volume for gold futures during the month was more than $210 billion-a-day, nearly twice last year’s average.  Trading was also heavy for options based on the gold futures contract, with more than $3 trillion worth of outstanding contracts based upon the options strike price of $1,500 for September and October, a reflection of interest in the market and the psychological importance of gold at $1,500 an ounce.  

When trading interest in gold futures and options is so high and net positions reach such extremes, some analysts argue futures prices may be vulnerable to volatile swings and a possible a reversal. Indeed, the futures market can experience roller coaster-like swings, as prices surge and sink with trader emotions. Purchasing physical gold and holding it for the long term is a far safer way of adding the precious metal to your portfolio.