Well, hardly had our article yesterday on a potential smashdown in gold and silver been published on site for a couple of hours than, hey presto, it seems to have happened. Or at least started. According to reports a massive $1.37 billion sale of gold futures hit the market at New York open. This initially drove the gold price down by around $20 before it recovered a little maintaining a level just above $1300 an ounce where it stayed overnight and in choppy morning trade in Europe. This morning has seen some strength on a rebound, though, taking the yellow metal back up above $1310 at the time of writing suggesting greater resilience than yesterday’s heavy seller(s) may have contemplated. Silver has been following gold’s lead as it is wont to do. True there had been weakness with some strong selling ahead of yesterday’s London open into a thin market as well so it looks like gold may have been seen as vulnerable and the heavy sellers – no doubt the holders of the big short positions – were quick to take advantage with a total knockdown of around $35 on the day.
But, one suspects, the heavy seller (or sellers) of the paper gold may not yet have achieved the desired objective and there could well be more to come designed to breach the psychological $1300 level on the downside and attempt to push gold down perhaps another $100. There is indeed money to be made by so doing and then buying back and letting the price rise. There is no level playing field in any of today’s financial markets it would seem.
And, of course, the major bank analysts, notably Goldman Sachs’ Jeffrey Currie, have been reiterating their positions for a gold price decline throughout the remainder of the year despite gold fundamentals looking to suggest the opposite. Currie is sticking to his guns and still predicting gold at $1050 by year-end, and given that there are many in the financial sector who look on Goldman Sachs as being omniscient the danger of such prophecies is that they can be self-fulfilling. None of those predicting big advances in the gold price have the same kind of financial firepower as the big banks who are forecasting the opposite.
Gold is perhaps looking potentially weak at the moment which is why those with the financial firepower may well be seizing the moment to try to drive the price down. Media coverage of the world’s major flashpoints – Ukraine, Iraq and Syria – seems to have diminished, no doubt awaiting some new disturbing development to again attract readership; India has not changed its anti-gold import restrictions in order to try and control its balance of payments deficit; and Chinese demand seems to have slowed compared with last year’s record imports – although they still remain well above those of 2012, the country’s second biggest ever gold import year. True, sales out of the gold ETFs seem to have reversed to become net purchases (just) so far this year, but any further gold price smashdown will be designed to make these ETF holdings vulnerable again – although this may be more difficult now with most of the truly weak holders having already exited their holdings.
There are a lot of entrenched positions out there vis-à-vis the gold and silver markets on both sides of the equation. One would see the potential short term advantage as being with those who may want to see the gold price lower for whatever reason, but longer term we suggest that fundamentals will win out – but perhaps only when it suits the big money to see that happen. But gold is renowned for burning the fingers of investors and this can happen to the big boys too. We are yet again in interesting times.