Reality and Perception Rarely Meet In Gold

While many investors fret over coordinated headline ‘diversions’, they always seem to miss important changes within the paper markets of control. The increased market depth (volatility and volume) provided by the paper operation has allowed ‘connected players’ to cover their short positions in size without their actions placing upward pressure on price. The operation will continue as long as ‘hype’ elicits the desired response and, more importantly, the cycle of TIME permits.

As always, how far the paper market can be stretched in favor of the shorts depends on the strength of physical market. As the article below suggests, the increasing premiums for physical in Asia reflects a tight market unfazed by the paper games. Connected money has been quietly reducing and reallocating their short exposure because they know that Asian demand is not transitory. They covered a big chunk of those short positions last week despite the “rethink long gold” hype since late 2010. This quiet adjustment which does not include the heavy selling towards the end of the week is illustrated below.

Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Retail money, highly impressionable to 'experts' selling fear and doubt, were sellers in weakness. What's new?

Gold London P.M Fixed and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Headline: Gold prices buoyed by China demand

A spike in gold buying by Asian investors has created a scarcity of investment-grade gold bars in the region, supporting prices even as western investors trim their holdings.

Traders said that gold sales to China had jumped 30-50 per cent since Christmas, driving the cost of kilo bars in Hong Kong more than $3 per ounce above the market price of gold, the highest level since 2008 and an indication of the tightness in the physical market.

Source: ft.com