Gold was smacked $22 from top to bottom overnight and this morning. It was a classic paper derivative raid on the gold price, which was implemented after the large physical gold buyers in the Eastern Hemisphere had closed shop for the day. This is what it looks like visually:
As you can see, as each key physical gold trading/delivery market closes, the price of gold is taken lower. The coup de grâce occurs when the Comex gold pit opens. The Comex is a pure paper market, as very little physical gold is ever removed from the vaults and the paper derivative open interest far exceeds the amount gold that is reported to be held in the Comex vaults (note: the warehouse reports compiled by the banks that control the Comex are never independently audited).
Today, technically, is first notice day for April gold contracts despite March 29th as the official designation. Any account with a long position that does not intend to take delivery naturally sells its long position in April contracts. Any account not funded to accommodate a delivery is liquidated by 5 p.m. the day before first notice. This dynamic contributes to the ease with which a paper raid on the gold price can be successfully implemented.
In all probability the price of gold (June gold basis) will likely not stay below $1300 for long. China’s demand has been picking up and India’s importation of gold is running quite heavy for this time of the year. Soon India will be entering a seasonal festival period and gold imports will increase even more. Today’s price hit will likely stimulate more buying from India on Friday.
You can read more from Dave Kranzler at his site Investment Research Dynamics.
Image credit: The Daily Coin.