Many market watchers are scratching their heads looking at the precious metals charts of the last trading days. Despite the fiscal cliff and possible downgrades of rating agencies looming over the US, and the Fed's announcement that it is going to be monetising debt at a rate of 1 trillion US dollars a year, gold just marked a new three-month low, falling below support at $1,700 and trading all the way down to $1,660 on Tuesday. Silver has been hit even harder and moved all the way down to $31 in yesterday’s session.

Many suggestions have cropped up as to why the metals are behaving so weakly, despite the overwhelming monetary fundamentals and against a falling dollar index, rising crude prices and robust equities: year-end book squaring, fiscal cliff hopes or the ratings upgrade for Greece. None of them really seem to qualify. A more likely explanation is that large commercial entities are using the low volume in the run up to the Christmas holidays to game the market. As pointed out in Alasdair Macleod’s recent analysis article, those banks hold a very large short position and therefore have an incentive to induce as much long liquidation as possible by raiding stop loss orders before covering.

Unfortunately this volatility is likely to continue in the four remaining trading days of this year. However as a physical investor this should not spoil your Christmas spirit. Long term participants in the precious metals will not be surprised by this behaviour, as they will recall last year’s price action when gold lost over $200 in December and silver dropped a full $6 up until the last trading day - only to recover as quickly as they dropped once January came around. To that extend it is encouraging to see a high level of despair in the metals pit, coupled with mischievous media attention as a contrarian sentiment indicator.

We must not forget that none of the debt problems in the developed world have been resolved in 2012 and the challenges for 2013 look even greater. With this in mind one could even regard the recent weakness in price as a window of opportunity to acquire some more shiny Christmas presents at a discount, in case you are still searching.