Gold’s Second Waterfall Drop This Week
Dennis Gartman, on ZeroHedge, verifies Kosares’s suspicion that something is amiss in London gold trading circles. Kosares thinks 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; for now, Kosares will stick with the banks—more precisely, the trading banks that were long the metal on paper until now.
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, China is on holiday, and won’t be back in the game until next week. When they do, if they sense opportunity, they will use this downside and put a call on the market for more physical metal. If that happens, there could be a quick reversal. There isn’t much physical metal available to meet the demand, and the buy orders won’t be met if the price is not high enough.
The World Gold Council and others have deemed the current situation a buying opportunity, particularly for physical buyers who can weather any downside. In the past, snapback rallies under similar conditions have been robust. There have been strong volumes in both gold and silver over the past few days, not at the best-of-year level, but notable nevertheless. Then again, Americans are not as directly affected, but they know attractive pricing when they see it.