What happened last night?


Gold had its biggest drop since December 2013 last night coming off $31 from this time yesterday, or 2.3%.  Likewise Silver dropped too by about 2.5%.  So what has happened?  We wrote last week about the ‘tug of war’ between the Wall Street traders who have piled on record amounts of short futures contracts and the ‘natural’ supply / demand, safe haven buyers.  Since writing that piece, last Friday’s Commitment of Traders report showed the combined short position increased markedly last week.  Remember this is big traders, with literally $billions at their disposal and the ability to electronically flash trade that amount  ‘betting’ on a price drop. 

 Keeping that in mind, ask yourself if the chart below (courtesy of Zero Hedge) looks natural?  Zero Hedge reported that US open hit was no less than a $1.37b notional flush.  But as we’ve said before, and as we saw in 2011, when there is a squeeze in supply they quickly lose control and the price takes off.  There is a lot of data indicating that is not far away and many gold commentators have been calling the next ‘bottom’ the last before it takes off.  Timing your buy?  There is a much repeated gold commentator quote of “I’d rather be a year early [buying] than a day late”.