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(Bloomberg) — If you’re looking for a sign on what gold investors are expecting from this week’s Federal Reserve meeting, look no further than open interest.
The measure, which tallies total contracts outstanding, shows traders are holding more gold futures than at any time since November 2012. Government data indicates that over the past five weeks long positions have surged while short wagers have slumped. That means the jump in open interest shows that investors are getting ready for a rally.

The metal is attracting investors who expect the Fed to signal this week that U.S. interest rates will stay low for longer, said George Gero, a vice president of global futures at RBC Capital Markets in New York. Lowers rates are a boon for gold because they keep the metal more competitive against assets that pay interest, such as bonds. If officials hold off on tightening monetary policy it also signals that things are worsening for the American economy, which makes bullion appealing as a haven asset.

There are other indications that investors are expecting the metal to make a comeback after the threat of higher rates dragged prices to a five-year low in July. Holdings in exchange- traded funds backed by gold climbed by 10.5 metric tons this month to 1540.7 tons, the biggest increase since February.
Futures in New York have gained 4.6 percent this month to $1,166.20 an ounce on Monday. Policy makers held interest rates steady at a meeting in September, citing global risks that threaten domestic growth and the central bank’s inflation target. While officials from Chair Janet Yellen to Vice Chairman Stanley Fischer said a rate increase may be warranted this year, traders in Fed-fund futures are pricing in the probability of liftoff at 36 percent by December, and an even lower chance of 6 percent at the two-day meeting this week that concludes on Wednesday.

“We’ve been building up open interest,” Gero said in a telephone interview from New York. “That’s a bullish indicator. People are going back to gold because of the likely decision” by the Fed on interest rates, he said.

To contact the reporters on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net; Joe Deaux in New York at jdeaux@bloomberg.net To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Millie Munshi, Joe Richter