The Phaserl


Market Report: Quarter-end distortions in the gold market

by Alasdair Macleod, Gold Money:

The gold price continued last week’s fall into Monday, which was the end of the first quarter of 2014. Since then having reached a low point of $1278 in New York trading, gold rallied to a high of $1294 on Tuesday before weakening on Thursday morning.

The rise on open interest peaked with the gold price three weeks ago. This indicates that buying interest since early February was being accommodated by an increase in market-makers’ short positions, instead of being met by genuine sellers, hardly a surprise. Shorts were also closing their positions by transferring them to the market-makers, aka bullion banks. And when there was no follow-through as a result of the Crimean situation, these market makers had to reduce their commitments ahead of their quarter-end report date, 31st March.

The result is open interest has contracted from a rich 427,774 contracts on 17th March to 363,451 contracts on 1st April, the lowest open interest since May 2009, and this week Comex volume has fallen from over 335,523 contracts a week last Thursday to a low of 106,729 yesterday. This tells us that interest in Comex gold is now as low as it is likely to get and further attempts by the market-makers to close short positions are unlikely to succeed.

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