GOLD PRICES recovered half of an earlier 4% crash in London trade on Monday, trading back above $1100 per ounce after making new 5-year lows as world stock markets rose, commodities fell and US bond yields edged higher.
Following Friday’s news that the People’s Bank of China bought less gold than Western analysts guessed
since last revising its figures in 2009, gold priced in Dollars sank 4.1% – down some $35 per ounce – inside a few seconds during Asian trade Monday morning.
Various analysts outside China speculated that, with Japan closed for a holiday, heavy selling by a trader wanting to push prices down – and so profit on an existing ‘short’ bet against gold – was done during quieter conditions, when the market would have been easier to spook.
Silver also spiked lower, hitting the lowest Dollar price since last December beneath $14.60 per ounce.
Typically 75% more volatile however, silver prices fell less than half as much as gold during the Asian spike, dropping some 2% before recovering to unchanged for the day at $14.85 – a near 5-year low when first reached last winter.
Demand for gold-price exposure through the SPDR Gold Trust (NYSEArca:GLD) – the world’s largest exchange-traded trust product at gold’s peak in 2011 – last week shrank near 8-year lows, almost halving the quantity of bullion needed to back GLD’s shares from the top of end-2012 to 696 tonnes on Friday.
“What is required to restore investor interest in gold?” asks the latest quarterly client letter from US gold-mining fund manager John Hathaway at Tocqueville Asset Management.
“In our opinion, a prolonged bout of financial-market adversity…A long position in gold and gold-mining…despite the requirement for substantial patience and fortitude…may prove to be an opportunity of generational proportion.”
Latest data released Friday
showed non-industry players in US gold futures and options contracts cutting both their bullish and bearish bets as a group from the previous week’s record levels.
Overall however, speculative traders’ net position in Comex gold derivatives shrank to the equivalent of 157 tonnes, the lowest figure since end-2013’s return to that year’s Spring crash lows.
The connection between gold prices and the net speculative position last week showed a monthly correlation of 0.96 – very nearly a record for 2015, and stronger than 83% of trading weeks since 1995.
A correlation of 1.00 would mean Dollar prices and the ‘net spec long’ moved in absolute lock-step.
“Gold has special risk-return characteristics,” said the PBoC in Friday’s announcement, “and at specific times is not a bad investment.”