Gold had the biggest gain in almost two weeks as traders pulled back bets on further declines before meetings of the Federal Reserve and Bank of Japan this week.
Investors who have been betting on price declines are accumulating protection ahead of the Fed’s meeting Tuesday and Wednesday, where a decision to hold rates steady would give gold a boost, said George Gero at RBC Wealth Management. Odds of a move this week are at 18 percent, Fed fund futures show. The probability rises above 50 percent by December.
Investors and traders “are short-covering just in case,” Gero, a managing director at RBC, said in a telephone interview from New York. “People are buying protection in the options. The Fed not moving is probably going to help gold at this time.”
The rally that sent gold futures to the best first half in almost four decades has faltered after Fed officials signaled the economy may soon be strong enough to withstand tighter monetary policy. Low rates are a boon to non-interest-bearing precious metals.
Gold futures for December delivery gained 0.6 percent to settle at $1,317.80 an ounce at 1:38 p.m. on the Comex in New York, marking the biggest gain since Sept. 6. Aggregate futures trading was 38 percent below the 100-day average for this time. On Friday, prices settled at $1,310.20, the lowest since June 23.
A decline in the dollar on Monday boosted demand for gold as an alternative asset. The two most-actively traded bullion options on Monday were calls giving holders the right to buy the metal at higher prices.
While they’re accumulating options, investors are still not piling into futures, concerned that a surprise move this week will trigger a sell-off. Open interest in gold futures fell for a seventh straight session on Friday, the worst streak since May. Even money managers are backing away, paring their net-long positions by the most in more than three months.
“Right now, the asset allocators are still bypassing gold because the stock market seems to be of more interest to them,” Gero said.
In other market news:
Silver futures gained on the Comex in New York, while platinum and palladium futures advanced on the New York Mercantile Exchange.