Gold bullion prices have been subjected to a cleverly
orchestrated bear raid in our opinion. Selling of paper Comex contracts on
Friday, April 12th, and Monday, April 15th, totaled 1 million contracts,
exceeding global annual gold production by 12%. The attack succeeded when the
technical support in the low $1500’s/oz. easily gave way and led to waves of
forced selling. The volume is without precedent and has all the characteristics
of a panic liquidation driven by naked short selling....
There is no way to know where or when the liquidation
will end, but it will inevitably do so, probably sooner rather than
later.
According to our source at the World Gold Council,
physical buying from India and China, which represents half of global gold
consumption, remains robust. Central bank buying activity shows no signs of
abating. The notion that weak peripheral European states will be forced to sell
their gold holdings is fanciful. A more likely scenario is that these holdings
would be used as collateral to support additional credit to the
sovereign.
All in all, it appears to us that this gold sell off
was made in America, based on an assessment of technical weakness by a large
number of opportunistic players, and supported by dubious macroeconomic
speculations. At the very least, a sharp rebound based on short covering and
physical buying should be expected once the panic has run its course. The
bigger consideration is whether the validity of the rationale for gold has
changed..."
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