The Chart That Best Illustrates How Gold Was A Bubble

The bubbles in the chart below represent the total market value of all positions in the gold futures market (open interest multiplied by price).

The last time there were fewer open contracts on gold in the futures market was four years ago, when gold was trading under $1000 an ounce.

What does this mean? Investor interest in gold has waned dramatically since prices peaked in 2011.

The flip side of this, of course, is that seven years ago, there was nowhere near this much activity in the gold market.

Miller Tabak Chief Economic Strategist Andrew Wilkinson writes today in a note to clients:

The current reading of open interest has fallen to 390,647 contracts as sellers drive the price of gold to $1,235. The last time open interest was this low was exactly four years ago when the price of gold stood at $927.40 per ounce. The current market value of outstanding gold positions of $48.24 billion is the least since September 2009 when gold stood at $1,008 per ounce attracting 458,691 contracts.

The reduction in investor positioning as reflected in declining open interest hardly suggests a rebound for interest in gold especially when the clear story remains ‘heading for the exit’. Indeed the tone points to further reductions, which judging by the magnitude of recent declines could easily put gold back under $1,000 per ounce.

The bubbles in the chart are clearly getting smaller. Given the sharp decline in gold prices in the second quarter of 2013, it seems unlikely that they will be expanding again any time soon.

Miller Tabak/Andrew Wilkinson

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