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Gold Recovered as Markets Took a Breather following the Election


Dec. 4 2020, Updated 10:53 a.m. ET

Bets on gold

After surging to multimonth highs, gold slowly retreated to its original level. Gold fell from its overnight high, and equity markets rebounded from their fall. The trends in both these asset classes reversed soon enough, likely indicating mere transition blips.

Before the election results came out, open interest in gold rose. On November 8, 2016, there were a greater number of active participants trading gold futures compared to November 1, 2016. Non-commercial traders were rather optimistic about gold, as they had greater long exposures, while commercial traders were mostly shorting gold. In total, there were a comparatively large number of short bets on gold. Similarly, silver futures had a more significant number of “sell” bets, a likely indicator of a pessimistic outlook for precious metals.

Market volatility, depicted by the CBOE Volatility Index (VIX), also peaked. Gold and VIX have a close relationship, as shown in the chart above.

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Gold futures volumes spiked

Economic and political outlooks will play significant roles in determining the direction precious metals take going forward. Some funds that are also dependent on these global factors include the iShares MSCI Global Gold Miners ETF (RING) and the SPDR S&P Metals and Mining ETF (XME).

Precious metals mining companies such as Sibanye Gold (SBGL), Gold Fields (GFI), Gold Corp (GG), and Franco-Nevada (FNV) also take many of their fluctuations from precious metals.

As a Trump victory became more and more apparent on election day, gold futures approached their busiest day ever. Trading volumes were almost triple the daily average.


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