Is Gold Breaking Down?

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Futures trading down to its lowest level in about 3-months has market watchers asking if this is the end of the big bull run in gold?

Doug Kass on Twitter today is saying he is hearing that a "mo mo" or momentum fund highly levered to gold is liquidating—the equivalent of twitter high-fives ensued.

But, Jim Steel, Chief Commodities Analyst is more sanguine. While he notes that the market has certainly been more interesting the last few days he is not bearish. He sees some selling pressure coming from the roll-over in Comex futures from February to April, with some investors stopping at the first leg and not getting long the back month. "Reduction in safe haven demand with positive eurozone bond auctions" is taking some of the froth out of the market but, it is not entirely one way.

While Mr. Kass sees the selling, in part, as a singular event, Mr. Steel says the trading is more broad based and is actually seeing some support from India and the Middle East with physical buyers stepping in as the price falls.

Gold demand has always been driven by a combination of physical demand (jewelers etc.), central banks and speculators. And while speculators are easing off don't forget reports that the Russians are accumulating tonnage for their reserves. And though Jim says the "ETFs have stalled a bit" this is a class of buyers that didn't exist historically—short-term speculators may be surprised by the underlying demand.


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