QUICK OPINION ON TODAY’S GOLD MARKET ACTION
by Michael J. Kosares (Founder, USAGOLD & Author, The ABCs of Gold
– How To Protect and Build Your Wealth With Gold)
We do not often find ourselves jogging the same track as the redoubtable
Dennis Gartman who commands untold premiums for his advice, but now, it
seems, he is verifying our suspicion of two days ago (Please see “Gold’s
waterfall drop might be associated with the big drop in British sterling”)
that something is amiss in London gold trading circles. Here today’s
chart – a second waterfall move in the gold market coincident with a second
swan dive for the pound and Gartman’s take (snipped from ZeroHedge). My
first instinct was that the paper gold liquidations in London “could be part
of a scramble for liquidity among big banks.” Gartman blames it on one
“massive” hedge fund. . . .Don’t know if he has an inside track on that or an
educated guess, but for now we will stick with “the banks” – more precisely
the trading banks who were long the metal on paper up until now.
Says Gartman:
“As for gold and the other precious metals they remain rather obviously
weak and as we move away from Tuesday’s collapse it appears more and more
that this was a forced liquidation on the part of a large… actually a
massive… hedge fund out of London. The sheer panic that swept through the
gold market then really hadn’t the look of a sell off predicated upon a
rumoured push by the ECB to curtail its purchases of sovereign debt
securities, nor had it the look of a rush on the part of hedgers in the gold
mining industry to hedge forward production. Rather it had the look of forced
margin-clerk liquidation. It looked like panic on the part of someone,
somewhere who had lost control of the situation.”
Another waterfall later, it looks like the Gartman’s culprit should be
pluralized, unless the single fund’s positions are so deep that it will need
more than one trading session to get liquid. But that doesn’t make a
lot of sense, not does it speak highly of the fund’s chief trader, it is
indeed some big fund doing the damage. We may find out the details at
some point down the road, but it is doubtful. Stuff hidden in the
bushes in London tends to stay in the bushes unless something forces it out.
The key point is that, if these waterfalls represent forced liquidations
to meet obligations elsewhere, the selling will be limited to the positions
on the books of whatever entities need the capital. In short, they will
come to an abrupt end.
Meanwhile, as the World Gold Council reports this morning, China is out of
the game for the week on holiday so gold’s standing buyer won’t be back in
the game until next week. When they get back, it they sense
opportunity, they will use this downside and put a call on the market for
more physical metal. If that happens, we could get a quick reversal. As we
have reported here copiously there still isn’t that much physical metal
available to meet the demand and the buy orders won’t be met if the price is
not high enough.
We go along with the World Gold Council and others who have deemed the
current situation a buying opportunity, particularly for physical buyers who
can weather any further downside. In the past snapback rallies under
similar conditions have been sharp and robust. We can report strong
volumes at USAGOLD in both gold and silver over the past few days, not at
best-of-the-year level reported by some of our British counterparts, but
notable nevertheless. Then again, Americans are not as directly
affected but they know attractive pricing when they see it. MK
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If this type of gold-based analysis interests you, you might want to take
a look at the October issue of News & Views – Forecasts, Commentary
& Analysis on the Economy and Precious Metals, we invite to subscribe
at our registration
page. There is no charge for the service
and your participation is welcome.
In is edition, we cover Deutsche Bank’s troubles and their potential
effects on the gold market, Russia’s important policy of gold accumulation
for its national treasury, the surprising strength in the silver ETFs, an
interesting piece on the long term evolution of the gold market and some
background on what a prominent member of the Council on Foreign Relations
thinks about gold (Titled “An enlightened minority”). We think you will
also gain from this issue’s Chart of the Month on gold under varying
longer-term interest rate circumstances.
We invite your interest. . . . . . . . .
