Specs' Gold-Futures Trading Goes AWOL Amid Unprecedented Volatility
The recent volatility in gold prices has been unusually high since early June, with big down days fueled by futures-driven action. However, speculators' gold-futures positioning hasn't reflected this, as they are normally responsible for big-and-fast gold moves during US trading days. American COMEX gold futures are their hyper-leveraged trading vehicle of choice, with each contract controlling 100 troy ounces of gold worth $413,550 midweek.
The extreme leverage in futures trading enables specs to punch way above their weights relative to capital risked, amplifying price movements. At 20x, a mere 5% gold move against traders' bets will wipe out 100% of their capital risked! In US stock markets, leverage has been capped at 2x since 1974.
The resulting US gold-futures price is gold's world reference one, dominating gold sentiment and investment capital flows. Investors are more likely to buy in a futures-driven gold rally, amplifying it, and when futures selling hammers gold lower, investors become increasingly bearish and flee. Normally, big daily moves are explainable by specs' gold-futures trading.