Ben Davies continues:

“The sell-off in gold is reminiscent of the 2008 deleveraging process but it is more similar in dynamics to 2012 when a notable fund manager had to sell his gold/ ETF holdings.  There were buyers of course, seller and buyer volumes must match.  But the need to sell overwhelmed the need to buy.

When you have redemptions time is against you to liquidate, so it becomes a case of sell at any price as time becomes finite. Gold buyers picked up some bargains then and they will now.


Before FOMC minutes two nights ago the seller was back at the close.  And then the FOMC minutes changed the dynamic of market with the mention by some members that QE would be back if they saw renewed economic weakness.  This is the association for us all of why the market stopped going down but in truth the seller was done. 

Like the December experience, once the seller is done, the market will snap back.  We run intraday correlations just to observe if markets are starting to fibrillate against each other.  We could see that risk assets were diverging and SPX was no longer moving with a 1.0 correlation with gold and silver.  We took this  as a positive sign that the precious metals were decoupling from risk assets. 

The seller was being soaked up by multiple buyers.  But all week we saw no significant Asian buying until two nights ago when the market went straight up yesterday on the open of the Asian morning.


We run a myriad of indicators to assess trends and where we are in trend.  We also use 5 indicators for sentiment and created a weighted index – one of the indicators has never been this low EVER in 12 years -- a level I had never seen. 

Based on even past but not quite as bearish readings the next 3 months have been some of the highest returns in gold market of the magnitude of 15-20%.  So we can potentially expect an even greater magnitude.  In all currencies but particularly in sterling terms I particularly would like to be long gold now.


We are currently writing a report on the UK that demonstrates the fiscal position will soon not be tolerated by the markets.  A fiscal crisis could spell a currency crisis.  People are walking EYES WIDE SHUT in this country.  Spain is irretrievable and the exposure of UK banks to Europe is still too high. 

We are surprised there is not more widespread withdrawal of money from banks in Europe as, after all, money in circulation is but a small percentage of demand deposits – so availability of physical money is a real issue should depositors rationally choose to withdraw money and place under the mattress.


In gold, in USD, we need to see gold create value above 1600 to 25 for a few weeks and then we will continue to migrate on a bullish trend higher.  There is an ever-present systemic risk growing in Europe, plus severe doubts about JPM to contain their issues – so a coordinated effort by central banks to backstop the global economy draws nearer. 

This eventuality would see gold trade much higher than the low 1600s in the next few weeks.  Any fund manager worth his salt knows the first loss number presented by JPM is not the last but what will final tally be and what risk to the financial system?  By observing credit markets and positioning we can see it is not pretty.  Others are taking the other side of this risk.  If it stinks, it can get really foul.  Well, it really stinks.


I would add that gold volatility across volatility term structure has risen – I suspect there are short gamma positions in the gold market that in this scenario act like a short position on gold.  If we look at other markets – credit indices and equity volatility -- we can see there is risk of higher volatility.  This will drive up gold volatility and heighten positioning risk in market.”

To read a blog on the mining sector by Mark Mahaffey the co-founder of Hinde Capital, click on the following link:

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