Gold’s “Black Monday” still a mystery

Gold’s “Black Monday” still a mystery


via Commerzbank


Even a week after “Black Monday” on the gold market, when the price plummeted by nearly $150, not all the questions have been answered. One of the most important questions still remains a mystery: “Who in fact sold gold last week?” While physical purchasing of coins and bars clearly increased, we were pretty certain that the CFTC’s statistics, to be published on Friday evening, would reveal a massive reduction in net long positions held by speculative investors, which in turn would signal a “surrender” on the part of hedge funds and a process of market adjustment.

This hope, however, was only partially fulfilled. True, net long positions held by “non-reportables”, that is to say small investors for the most part, dropped by almost half week-on-week on Tuesday and at around 13 thousand contracts were at their lowest level since December 2008, when the gold price was still trading at just under $840. Nonetheless, net longs held by money managers (known as “managed money”) climbed even more sharply by around 19 thousand contracts in the reporting week, reaching their highest level since the beginning of February.

John Paulson, currently the most famous gold speculator, has also reasserted his engagements, so any liquidation on his part cannot be regarded as a declaration in favour of a sell-off. The CFTC report nonetheless contains a number of anomalies, especially as far as options are concerned. We will investigate these over the next few days.