Gold’s Biggest ETP Erases 2014’s Gain Amid Open Interest Slump

Aug 08, 2014 2:47 pm ET

Aug. 8 (Bloomberg) -- Gold investors are once again pulling money out of the the world’s biggest exchange-traded fund backed by the metal.

Assets in the SPDR Gold Trust, which counts billionaire John Paulson as its largest holder, fell 0.5 percent this week, the most since mid-June and erasing this year’s gain. Open interest in Comex futures and options is at a five-year low. Prices slid 0.1 percent in New York today.

Bullion rallied 9 percent this year, defying bearish forecasts from Goldman Sachs Group Inc., as tensions between Russia and Ukraine and violence in the Middle East boosted demand for a haven. In 2013, signs of U.S. economic expansion sent prices down 28 percent, while assets in SPDR fell the most since the fund was created in 2004. Last month, gold fell 3 percent on concern that the Federal Reserve will raise interest rates.

“Gold has been reacting to the geopolitical headlines, but the gains because of the safe-haven buying are not sustainable,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “Prices will start declining once people realize that the Fed is seriously considering raising the rates.”

SPDR holdings are down 0.1 percent for the year at 797.65 metric tons. Last year, assets fell by 552.6 tons.

On the Comex, gold futures for December delivery fell $1.50 to settle at $1,311 an ounce at 1:43 p.m. in New York.

Air Strikes

Prices earlier rose to $1,324.30, the highest for a most- active contract since July 18, as President Barack Obama authorized airstrikes in Iraq, and Israel said a cease-fire with Hamas forces in Gaza was violated hours before it was due to expire. The precious metal rose 1.3 percent this week.

Goldman repeated a forecast for gold to drop to $1,050 by the end of 2014, in a report dated July 23, citing a U.S. economic recovery.

The Fed reduced its monthly bond-buying program to $25 billion on July 30, making a sixth consecutive $10 billion cut amid gains in American employment.

Silver futures for September delivery fell 0.2 percent $19.941 an ounce. Prices dropped for a fourth straight week, the longest streak since Nov. 22.

On the New York Mercantile Exchange, platinum futures for October delivery declined 0.2 percent to $1,478.30 an ounce. Palladium futures for September delivery increased 0.5 percent to $860.50 an ounce.