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Gold rout intensifies; prices plunge more than USD100/oz
Gold posts biggest one-day loss ever under hedge funds’
pressure; economic fears lead to a plunge in silver and PGM
prices; margin increases may help steady bullion prices
Near-term momentum may take precious metals lower, but
long-term buyers, including the official sector, emerging
markets, and industrial users will likely enter the market
Commitments of Traders data compiled by the Commodity
Futures Trading Commission show heavy long liquidation,
which may leave prices well-placed to recover
Market focus, emerging trends
A decline in precious metals prices turned into a full-scale rout, with silver falling by
USD7/oz at one point and gold falling by more than USD100/oz, its biggest one-day drop
on record. The PGMs also racked up big losses. With almost no letup in selling in the
early part of the trading session, heavy selling by hedge funds pushed prices lower. We
detected no obvious event in the financial markets or economic releases to explain the
slide by gold and the other precious metals. Rather, we believe the selling was a
continuation of the trend established the previous day, with momentum players seeking to
capitalize on the price declines and willing to press the bullion markets lower.
The momentum in the bullion markets may take prices even lower in the near term. It is
our view that gold, silver, and the PGMs have been caught in a maelstrom of financialasset selling. Investor liquidation, notably but not exclusively in equities, spilled over to
gold. Also, declines in the broader commodity sector have had negative consequences for
gold. Gold and silver have weightings of 3-6% in the major commodity indices, and the steep declines
across the commodity complex trigged heavy selling of gold and silver by commodity index managers.
The slide in gold prices may lead some investors to question gold’s utility as a safe haven, but in our
view, bullion is fulfilling this function by providing cash in times of financial stress.
The driving force behind the long-term gold rally has been declining investor confidence in the economy
and the ability of government and institutions to influence economic events favorably. Growing
government debt levels, a paucity of alternative safe havens, and sinking bond yields have created a
climate conducive to the gold rally. To our knowledge, this has not changed, and the same set of
circumstances that propelled gold higher, including the euro-zone sovereign debt crisis and rising US debt
levels, remains unchanged. This leads us to believe that the gold rally is still intact.
The gold and precious metals markets may need a development to bring them out of their tailspin. We
believe that some combination of emerging-market buying, bottom-picking by investors, and possibly the
entry of longer-term, strategic players looking to acquire gold, such as pension funds or sovereign wealth
funds, could stem and then reverse the slide. In the case of the PGMs, we believe that current prices are
attractive levels for automakers and other industrial users to acquire material. Chinese demand for
platinum jewelry has been strong all year, and we expect it to get an additional boost from the drop in
platinum prices. A deterioration in the macroeconomic climate could shift investors back to gold.
Following a meeting of finance ministers of Brazil, Russia, India, China, and South Africa – the BRICS –
China’s finance ministry recently said that major developed countries should maintain financial stability
and handle their sovereign debt problems properly. This may mean that China is not ready to come to the
aid of the peripheral euro-zone nations. IMF Managing Director Christine Lagarde said risks have
increased sharply amidst a weak and uneven recovery. Thus, the climate still appears positive for gold
longer-term. The near-term selling, however, might not be exhausted just yet. On 23 September, the
Chicago Mercantile Exchange announced higher margins on gold and silver futures trading, which we
believe may help steady prices.
Based on the past 40 years of data, the drop in gold prices on 23 September represented a 3 standard
deviation event as prices fell more than 4% in a single day, which has occurred only 65 times since 1970.
According to the data, daily movements in gold tend to trade in a range of +/-1%. The market has stayed
within this range roughly 70% of the time since 1970. A movement of the magnitude on 23 September
was evidence of a pronounced change in daily volatility for gold, representing a left tail event, as shown
in the chart overleaf. Price movements of this magnitude are rare, and when they happen, volatility tends
to remain high for the short term. Based on the recent price action, we believe that heightened volatility in
the near term is likely.
Commitments of Traders data compiled by the Commodity Futures Trading Commission as of 20
September showed a drop in net long speculative positions for gold, silver, platinum, and palladium. For
gold, net long positions fell by 1.28moz to 19.76moz, marking the first time long positions have been
below 20moz since the end of January this year. For silver, net long speculative positions dropped by a
substantial 23.39moz to 203.54moz. For platinum, net long speculative positions fell by 164,800oz to
1.508moz, and for palladium, net long positions fell by 102,000oz to 1.051moz. The steep declines in net
long speculative positions in all the precious metals in the past two weeks may mean that short-term longs have closed positions
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Gold rout intensifies; prices plunge more than USD100/oz
Gold posts biggest one-day loss ever under hedge funds’
pressure; economic fears lead to a plunge in silver and PGM
prices; margin increases may help steady bullion prices
Near-term momentum may take precious metals lower, but
long-term buyers, including the official sector, emerging
markets, and industrial users will likely enter the market
Commitments of Traders data compiled by the Commodity
Futures Trading Commission show heavy long liquidation,
which may leave prices well-placed to recover
Market focus, emerging trends
A decline in precious metals prices turned into a full-scale rout, with silver falling by
USD7/oz at one point and gold falling by more than USD100/oz, its biggest one-day drop
on record. The PGMs also racked up big losses. With almost no letup in selling in the
early part of the trading session, heavy selling by hedge funds pushed prices lower. We
detected no obvious event in the financial markets or economic releases to explain the
slide by gold and the other precious metals. Rather, we believe the selling was a
continuation of the trend established the previous day, with momentum players seeking to
capitalize on the price declines and willing to press the bullion markets lower.
The momentum in the bullion markets may take prices even lower in the near term. It is
our view that gold, silver, and the PGMs have been caught in a maelstrom of financialasset selling. Investor liquidation, notably but not exclusively in equities, spilled over to
gold. Also, declines in the broader commodity sector have had negative consequences for
gold. Gold and silver have weightings of 3-6% in the major commodity indices, and the steep declines
across the commodity complex trigged heavy selling of gold and silver by commodity index managers.
The slide in gold prices may lead some investors to question gold’s utility as a safe haven, but in our
view, bullion is fulfilling this function by providing cash in times of financial stress.
The driving force behind the long-term gold rally has been declining investor confidence in the economy
and the ability of government and institutions to influence economic events favorably. Growing
government debt levels, a paucity of alternative safe havens, and sinking bond yields have created a
climate conducive to the gold rally. To our knowledge, this has not changed, and the same set of
circumstances that propelled gold higher, including the euro-zone sovereign debt crisis and rising US debt
levels, remains unchanged. This leads us to believe that the gold rally is still intact.
The gold and precious metals markets may need a development to bring them out of their tailspin. We
believe that some combination of emerging-market buying, bottom-picking by investors, and possibly the
entry of longer-term, strategic players looking to acquire gold, such as pension funds or sovereign wealth
funds, could stem and then reverse the slide. In the case of the PGMs, we believe that current prices are
attractive levels for automakers and other industrial users to acquire material. Chinese demand for
platinum jewelry has been strong all year, and we expect it to get an additional boost from the drop in
platinum prices. A deterioration in the macroeconomic climate could shift investors back to gold.
Following a meeting of finance ministers of Brazil, Russia, India, China, and South Africa – the BRICS –
China’s finance ministry recently said that major developed countries should maintain financial stability
and handle their sovereign debt problems properly. This may mean that China is not ready to come to the
aid of the peripheral euro-zone nations. IMF Managing Director Christine Lagarde said risks have
increased sharply amidst a weak and uneven recovery. Thus, the climate still appears positive for gold
longer-term. The near-term selling, however, might not be exhausted just yet. On 23 September, the
Chicago Mercantile Exchange announced higher margins on gold and silver futures trading, which we
believe may help steady prices.
Based on the past 40 years of data, the drop in gold prices on 23 September represented a 3 standard
deviation event as prices fell more than 4% in a single day, which has occurred only 65 times since 1970.
According to the data, daily movements in gold tend to trade in a range of +/-1%. The market has stayed
within this range roughly 70% of the time since 1970. A movement of the magnitude on 23 September
was evidence of a pronounced change in daily volatility for gold, representing a left tail event, as shown
in the chart overleaf. Price movements of this magnitude are rare, and when they happen, volatility tends
to remain high for the short term. Based on the recent price action, we believe that heightened volatility in
the near term is likely.
Commitments of Traders data compiled by the Commodity Futures Trading Commission as of 20
September showed a drop in net long speculative positions for gold, silver, platinum, and palladium. For
gold, net long positions fell by 1.28moz to 19.76moz, marking the first time long positions have been
below 20moz since the end of January this year. For silver, net long speculative positions dropped by a
substantial 23.39moz to 203.54moz. For platinum, net long speculative positions fell by 164,800oz to
1.508moz, and for palladium, net long positions fell by 102,000oz to 1.051moz. The steep declines in net
long speculative positions in all the precious metals in the past two weeks may mean that short-term longs have closed positions
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