Gold Prices Rocket Higher as Bearish Traders Grow Nervous
San Francisco (Dec 4) Gold futures shot higher Wednesday as earlier gains made some bearish traders reduce their wagers on lower gold prices.
Gold for February delivery was recently up $27.70, or 2.3%, at $1,248.50 a troy ounce on the Comex division of the New York Mercantile Exchange.
Gold prices proved resilient in the face of stronger U.S. labor market data, with futures quickly shaking off initial losses to move higher. The gains picked up pace, as some bearish investors rushed to cut back bets on lower prices.
Traders must repurchase previously sold positions, or short contracts, to neutralize bets that profit when gold prices fall.
In recent months, an increasing segment of traders has wagered that gold prices will fall if the Federal Reserve winds down its stimulus efforts. The bond-purchasing program had sparked fears of high inflation and a weaker dollar, prompting some investors to seek the safety of gold.
"It almost seems too easy to get short gold right now," said Adam Klopfenstein, a senior market strategist with Archer Financial Services LLC.
But on Wednesday, the widespread bets on lower gold prices backfired. An updraft on the back of a lackluster dollar swiftly escalated into a rally, which caused more traders to try to limit losses on bearish wagers.
"People are just being cautious," said Bob Haberkorn, a senior commodities broker with RJO Futures.
Gold traders have gingerly followed U.S. labor market readings for potential insight into the Federal Reserve's policy decisions. The central bank has said that a stronger employment market is integral to rolling back its $85 billion-per-month bond-purchasing program.
For gold, ending the Fed's stimulus measures removes a long-running source of support. Many investors feared the additional liquidity would lift inflation or weaken the dollar and sought safety in gold.
Mr. Haberkorn said that Wednesday's run up is unlikely to mark the beginning of a new rally in gold.
"The market is looking for what comes out on Friday and will take direction from the jobs number," he said, referring to the government's release of the November employment report.
