Gold's Missing Futures Speculators: A New Era of Volatility?

Gold's recent volatility has been unusually high since early June, with six 2%+ down days and three 2%+ up days. Despite this, the positioning of gold futures speculators has not reflected this volatility, leaving some experts puzzled. American gold-futures speculators are known for dominating short-term gold fortunes due to the extreme leverage inherent in futures trading.

In a typical market, these traders would be responsible for big-and-fast gold moves, especially during US trading days. However, their positioning has been flat and secular lows have been observed recently. This has led some experts to question whether this historical relationship between speculators and gold prices is breaking down.

The extreme leverage in futures trading allows specs to punch above their weight relative to capital risked. Each contract controls 100 troy ounces of gold, worth $413,550 midweek, but traders are only required to keep $20,735 cash in their margin accounts for each contract traded. This enables maximum leverage of up to 19.9x.

The risks associated with such price amplification are huge, and a mere 5% gold move against traders' bets can wipe out 100% of their capital risked. The recent absence of speculators in the gold market has been attributed to several factors, including the lack of clear news catalysts.