Precious metals suffered a large drop in early morning trading today, triggered by heavy selling overseas for no apparent reason. Gold has hit a 15-month low, with sell stops triggered at $1,560 and a large amount of stops triggered at the $1,548 level. This forced some speculators to liquidate long positions, adding to the drop. Silver was also hit, sinking well below $27 before recovering slightly.
There is no major news to explain this phenomenon. The most likely suspect would have been rumors earlier this week that Cyprus was going to sell 10 tons of gold from its central bank to finance part of their bailout, but that rumor was quashed by government officials.
Possible scenarios are investors in the U.S. dumping ETF holdings to pay taxes ahead of the April 15th deadline, or a large number of people deciding to ignore diversifying and going all-in on the stock market. While today’s economic news in the U.S. showed falling prices, fears of deflation seem absurd when central banks in the U.S. and Japan are printing billions of dollars/yen a month.
The dollar is a bit higher today against a basket of currencies and the euro, but lost ground slightly to the yen. Oil hit an eight-month low. Stocks opened lower in New York, as economic news today included the Producer Price Index falling 0.6% after rising 0.7% the month before. U.S. retail sales dropped by 0.4%, to the lowest level in 9 months. A drop of 0.1% was expected. This added to the decline in overseas markets, where stock indexes are down across the globe as traders lock in profits at the end of the week.
Some analysts have pointed to the recent trend of outflows from precious metals ETFs as a sign that gold is losing its attraction as a safe haven and inflation/debasement hedge, but Commerzbank notes that gold inventory levels in the COMEX exchange are falling. To have falling gold inventory on the COMEX while ETFs are selling gold, you have to have people actually taking physical delivery on contracts, instead of speculating with them. In the wake of the Cyprus “bail in,” this points to more large investors subscribing to the idea of “if you don’t hold it, you don’t own it.”