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Gold Prices Slip Again as SGE Premiums Drop, Comex Specs Sit Tight Ahead of the Fed

SOFTER GOLD demand in No.1 consumer market China saw London prices edge lower on Monday after recording the biggest weekly drop of 2024 to date as Shanghai's gold markets raised margin requirements and Comex speculators held their futures and options position unchanged ahead of this week's Federal Reserve's policy meeting, writes Atsuko Whitehouse at BullionVault.
Dropping 1.5% last week in London's bullion market, spot gold prices in US Dollar terms slipped 0.3% to $2330 per ounce today, but held above last Tuesday's 3-week lows beneath $2300, hit on the  sharpest 1-day gold drop since May 2022.
Looking at speculative trading in Comex gold futures and options contracts, "Gold's near 3% correction in the week to 23 April triggered a small amount of net buying," says Ole Hansen, commodity strategist at derivatives platform Saxo Bank.
But the bulk of bullish positions now held by hedge funds and other Managed Money traders were first bought in early March below $2200, he notes. 
"In other words, a much deeper correction is needed to trigger a washout of longs."
Chart of Managed Money's net bullish position in Comex gold futures and options. Source: BullionVault
Net of bearish bets, the net bullish position among Managed Money traders grew 92.6% in early March according to data from US regulators the CFTC, making the steepest weekly growth in Comex gold betting almost 5 years as the price of the yellow metal surged by nearly 5% to $2134.
Latest data now show those leveraged speculators in Comex gold futures and options kept their net bullish betting almost unchanged in the week ending last Tuesday, holding it 1.2% below early April's peak at the highest since July 2020 – eve of gold's first-wave Covid Crisis top of $2075 per Troy ounce.
Alongside last month's surge in Comex speculation, "Gold's 'mysterious rally' was backed by Chinese private investors," says Bruce Ikemizu, chief director of the Japan Bullion Market Association, pointing to the premium on the Shanghai Gold Exchange (SGE).
But while gold prices on the SGE continued to trade above London today – offering 3 times the historical average of $8 per ounce as an incentive to new bullion imports – the premium fell further from last week's average of $27 and was sharply below the prior week's level of $48.
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Trading volumes on the SGE fell 25% last week and trading in gold derivatives at the Shanghai Futures Exchange almost halved after both exchanges raised margin requirements amid warnings against chasing the gold rally from Chinese state media.
"Now that the gold price is down $100, the adjustment seems to be over," Ikemizu says.
Wholesale bullion in the spot market for UK and Euro investors meanwhile edged down 0.5% to £1862 and 0.3% to €2178 respectively on Monday, and gold priced in Japanese Yen today fell as much as 2.5% from Friday's close, dropping to ¥11,611 per gram as the currency suddenly rebounded from new 3-decade lows against the US Dollar.
The yellow metal for Japanese investors has risen almost 25% so far this year as the Bank of Japan has raised interest rates only to zero despite surging inflation – a trend which new data last week said has ended abruptly for households in Tokyo, where the cost of living has risen only 1.8% per year in April, down from 2.6% in March and sharply below late-2023's four-decade highs above 3%.
This Wednesday's US Federal Reserve policy decision will leave the fed funds interest rate unchanged at 2-decade highs above 5.25% according to market consensus.
The Fed will then end 2024 with a key interest rate of 5.04%, according to market positioning reported by derivatives exchange the CME's FedWatch tool, indicating only a quarter-percentage-point cut for the year – a dramatic revision from the 6 rate cuts expected at the beginning of the year.
The price of silver, which derives nearly 60% of its annual demand from industrial uses, steadied today at Friday's close of $27.21 per ounce after experiencing a 2.2% decline last week.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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