Gold Panic or Forced Selling?
October 10, 2016
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
Friday proved difficult… for a while at least… as some $2 billion in gold futures were sold in a few moments of panic liquidation, sending spot gold to a low of $1242, as the psychologically important $1250 level was broken. Then, in late trading, gold finished barely lower upon the day and as we write it is trading rather briskly higher in impressive fashion as China has returned to the market with some sense of zeal.
We are convinced… although we’ve no hard data to back this up and we shall openly admit that fact here this morning…that Friday’s selling was further forced liquidation of one or two large hedge funds.
Something else has caught our eye and that is the relative calm that has beset the gold ETFs, with little if any liquidation of gold bullion positions. Indeed, as our friend John Brimelow… the keeper of such data and upon whom we rely for this sort of thing… holdings of gold in larger ETFs actually rose a bit late last week, rising by just over 11 tonnes to 959 tonnes. Smaller, but nonetheless still materially influential ETFs reported no net change in its gold holdings. In other words, the holders of bullion have chosen to sit tight despite the recent swift, material weakness; the selling was in “paper.”
Finally, it is interesting that the EUR is coming under some modest pressure, spot gold seems to have found a bid. Normally… or at least in the course of the past two or three weeks… gold and the EUR have moved in lock-step; that is, as the EUR has strengthened, so too has gold, and as the EUR has weakened, gold has followed hard upon. However, in the past several hours, as the EUR has weakened, gold has actually risen. It is far, far too early to suggest that this new relationship is developing, but certainly we hope that it is given our marked propensity to own gold only in EUR denominated terms.