The gold market still has plenty of growth potential as micro accounts attract retail

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(Kitco News) – The gold market is just starting to tap into its full investment potential as the CME micro futures contracts continue to lower the entry point for smaller retail investors.

In a recent interview with Kitco News, Jin Hennig – managing director and global head of metals at the CME, said that accessibility has created new growth opportunities for the gold market as investors look for alternatives to hedge against inflation and geopolitical uncertainty.

“Gold is doing its job with the world in a certain place,” she said. “I think the retail market is still very much untapped when it comes to gold.”

Hennig’s comments come a month after the CME launched options on its micro gold and silver futures contracts. The micro market allows investors to buy and sell gold and silver at a reduced cost. Micro futures represent one-tenth the size of a traditional futures contract.

According to trade data, the CME said that its micro gold futures have seen average annual volume growth of 58% since the contracts were launched a decade ago, while micro silver futures have seen volumes increase 93%.

At the same time, geopolitical uncertainty, as Israel’s war with Hamas created new chaos in the Middle East, driving significant investor interest in gold and silver in October.

In its monthly trading stats, the CME said that the average daily volume in both full and micro futures totaled 482,000, up 24% compared to October 2022.

Along with smaller accounts, the CME notes that investors are also managing risks and precious metals exposure through options. The October trade data shows that the average daily volume across the precious metals has increased 29% compared to last year.

Gold continues to attract the most attention, with average daily volume in gold options up 76% from last year; open interest in the yellow is at its highest level since 2020.

“To me, this is a sign of where we are in the world and comparing it to the uncertainty we saw in 2020,” said Hennig.

Looking at the silver market, which has struggled to keep pace with gold, the precious metal has seen the average daily volume in its options increase 48% compared to October 2022.

Solid investment demand in gold and silver comes even as the market has seen lackluster price action through most of 2023 as the Federal Reserve’s restrictive monetary policies have supported strength in the U.S. dollar and pushed bond yields to their highest level in 16 years.

Hennig said that while gold isn’t always front and center in financial markets, investors continue to see value in holding it as insurance within their portfolios. She added that the sharp rise the market saw last month reaffirms gold’s value in times of uncertainty.

Hennig added that she is not expecting that global market uncertainty will continue to drive global demand. She noted that the CME has seen solid global demand in Asia and the Middle East.

“Gold continues to be an important international asset,” said Hennig, “Overall, it’s been gold is a good growth story. We are seeing growth in every region and in every client segment.”