Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories.
The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.
Comex gold bullion inventories have slumped 17% already in 2013, falling to just 286.6 metric tons of actual metal on April 11, the lowest since September 2009.
This means that futures speculators on Friday sold a significant amount of more paper gold, in an hour or two, then the entire COMEX physical gold bullion inventories.
Interestingly, the drop in Comex inventories would be the biggest for a whole year since 2001, when bullion began its secular bull market.
Absolutely nothing has changed regarding the fundamentals of the gold market and bullion owners are advised to again focus on the long term and the vital diversification benefits of owning gold over the long term.
Although some Federal Reserve policy makers said that they probably will end their $85 billion monthly U.S. bond purchases sometime in 2013. The key word is ‘probably’ and it remains unlikely that the Federal Reserve will stop their debt monetization programs any time in 2013 or even in 2014.
Even if the Fed did end them, ultra-loose monetary policies and negative real interest rates are set to continue as are competitive currency devaluations and currency wars - two other fundamental pillars supporting the precious metal markets.
Buyers are now presented with another very attractive buying opportunity. We always caution against trying to “catch a falling knife” and buyers should hold off until we get a few days of higher closes or a weekly higher close. Alternatively, they should consider dollar, pound or euro cost averaging into a position at these levels.
Sellers should consider holding off as if contemplating selling they may have missed their opportunity and if they have to sell they may be best placed holding off until prices bounce or recover. Sellers are now disadvantaged both in terms of price but also in terms of premiums that have spread on some physical bars such as one kilo bars.
In the course of gold’s bull market, vicious sell offs like this have often presaged material weakness in stock markets and this may occur again.
Gold’s ‘plunge’ is now headline news, which is bullish from a contrarian perspective. Less informed money is again selling gold or proclaiming the end of gold’s bull market.
The smart money, such as certain hedge fund managers, high net worth individuals, pension funds, family offices, institutions and creditor nation central banks, and will see this vicious sell off as an absolute gift and will accumulate again on this dip.
A long term allocation to physical gold bullion to hedge systemic and monetary risk remains vital.