All Eyes On The Gold Rout, Most Oversold In 14 Years

Tyler Durden's picture

While China's trifecta miss of GDP, Retail Sales and Industrial Production all coming lower than expected was likely a factor in the overnight rout of gold, the initial burst of selling started well before the Chinese data hit the tape, or as soon as Japan opened for trading with forced financial institution selling to prefund cash for any and all future JGB VaR-driven margin calls. It was all downhill from there, literally, with overnight selling of gold punctured by brief burst of targeted stop hunting, sending the metal down $116 per ounce, as spot touches $1385 after trading nearly at $1500 yesterday and down $200 in 4 days. End result, whether due to a re-collapsing global economy, margin calls, fears forced Cyprus gold selling will be imposed on all other insolvent European countries, coordinated central bank slams, hedge fund positioning, long unwinds, liquidations, fears about future demand, or whatever the usual selling suspects are, is that gold tumbles an unprecedented 7.8% on 230,000 contracts in one day, and well over 10% in two days, pushing the yellow metal 14 day RSI band to 18, meaning it is now most oversold since 1999. In brief, it is an all out panic, with Goldman still telling clients to sell, i.e., buying every shiny ounce all the way down (not to mention India, where accordingto UBS Friday demand was double the average).

Below are some banks' takes on the overnight action via BBG:

Deutsche Bank:

  • Unclear at this stage if there’s a clear link between the decline in gold prices and the currency markets; China’s weak 1Q GDP data probably had a more direct impact on currencies this morning than gold, Bilal Hafeez, strategist at Deutsche Bank, says in interview
  • Commodity prices underwent some position adjustments on Friday, unclear on cause
  • Overall commodity cycle will be important going forward for currencies such as AUD and NZD


  • Impact of decline in gold price was seen in commodity-related currencies like AUD and NZD; some unwinding in the JPY was also noted; EUR and GBP have  been largely steady on the gold move, Rohan Ramchandani, head of European spot trading at Citigroup, says in interview
  • Gold decline may have been related to some break in technical levels and the general improvement in global risk appetite
  • Gold drop may have some more room to run in short-term but in the longer-term, gold should be supported, and likewise the commodity currencies; market has been comfortably long on the gold trade since the financial crisis

Morgan Stanley

  • Impact of gold decline on AUD should be buffeted by the easy global liquidity conditions, Ian Stannard, strategist at Morgan Stanley, says in interview
  • Expect AUD to hold up in recent trading range even with the decline in gold prices as long as equity markets continue to provide a positive signal and there’s prospect of Japanese asset reallocation overseas


  • While gold should decline in the longer term on USD strength, short-term risk is financial dislocation, Chris Turner, strategist at ING, writes in note
  • Pickup in gold volatility may see increase in the 15% haircuts on gold’s use as collateral at major financial exchanges; gold has become a strong source of collateral since the global financial crisis
  • Gold collapse has sparked some unwind in USD/JPY


  • Plunge in prices of precious metals has caught market attention, suggesting note of caution for risk sentiment in general, Jordan Kotick, global head of technical strategy at Barclays, writes in note
  • Break in gold and silver’s multi-year range lows are forcing liquidation across board, not just in USD terms but also when priced in almost any currency
  • Markets may unsettle, risk of near-term correction in many recent trends such as JPY crosses, AUD/USD and USD/CAD


  • Gold collapse on break of 1,522/25 key support has forced copper, oil to take a beating; CAD is weaker while JPY correct seems to be getting legs

In other words, nobody has any idea what is going on, but is piling on to spread the confusion. Which, of course, for those who only care about the ongoing dilution of global fiat, which shows no signs of halting especially with the global economic deterioration accelerating, courtesy of central bank printing, a very welcome opportunity to paper dollar cost-average much lower.

Speaking of deteriorating economics, here is a brief recap of the Chinese data via SocGen:

The week opened with a truckload of unpleasant surprises from Chinese activity data. GDP growth decelerated unexpectedly to 7.7%yoy in Q1 from 7.9%yoy previously. March industrial production and fixed asset investment also came in decisively below street expectations, despite accommodative liquidity conditions. The data disappointment shocked down prices of all kinds of risky assets, from the AUD, commodity prices, to stock markets across the region. We do not think Q1 marked the end of recovery, as the lagged impact of rapid credit growth in the past few months should kick in later. However, at the same time, the latest data firmly support our call for a weak and short-lived cyclical recovery of the Chinese economy in 2013.

China’s economic growth unexpectedly decelerated to 7.7%yoy in the first quarter The Chinese economy grew 7.7% yoy in Q1, below market expectations (Cons. & SG 8%) and down from 7.9% yoy in Q4 2012. The biggest surprise to us was the sharp slide in the investment contribution (2.3ppt from 3.9ppt in 2012), despite the clear acceleration in credit growth since Q4 2012. Consumption – private and public combined – contributed 4.3ppt, only marginally higher than the 4.1ppt in 2012 but substantially short of the 6.4ppt in Q1 2012. As we expected, net exports were a big plus, adding 1.1ppt to Q1 growth (vs. -0.2ppt in 2012).

Retail sales registered a 12.6%yoy growth in March, in line with expectations (Cons. 12.6%, SG 12.5%, Jan-Feb 12.3%). But such a pace still suggested a fairly soft momentum of consumption, by China’s standard. The impact of anti-corruption measures was easily spotted, with the catering sector mired in contraction (-1.1%yoy in March). Other major drags were car and petroleum sales. Comparing to December, these three categories subtracted 1.2ppt, 1ppt
and 2.1ppt from the headline growth, respectively.

Industrial production growth slid substantially from 9.9%yoy during the first two months to 8.9%yoy in March (Cons. 10.1%; SG 9.7%) – the slowest pace since May 2009. Utility production was particularly weak, with power generation growth falling to 2.1%yoy in March from 3.4%yoy in January and February. In addition, textile and IT equipment manufacturing also slowed down notably. Throughout the first quarter, IP persistently undershot expectations, while export growth stayed firmly on the other side of the consensus. This latest IP reading only casted more doubt on the reliability of the strong export data in the past few months.

Consistent with GDP breakdowns, fixed asset investment (FAI) grew slower at 20.9%yoy in Q1 (Cons. 21.3%, SG 21.5%), implying a deceleration to 20.7%yoy in March from 21.2%yoy in January and February. Real estate investment growth fell back to 17.6%yoy from the surprisingly solid level of 22.8%yoy previously, indicating that developers may have started to adjust their investment plan shortly after the announcement of renewed tightening. Other property sector data were also not as upbeat as we initially thought. Property starts contracted again by 20.2% yoy in March, after only two months of positive growth; property sales growth almost halved to 26.6%yoy in March from the feverish pace in the previous two months. Given this, the well-reported surge in second-hand home transaction seemed to be largely regional.

Manufacturing FAI posted some improvement, rising 19.9%yoy in March (vs. 17%yoy in the first two months). However, those sectors that are suffering from excess capacity continued to show little sign of revival. Infrastructure investment grew apace at 26.5%yoy in March, up from 24.2%yoy in January and February. State-driven FAI remained the major support to China’s growth.

* * *

So yeah, central banks will stop printing any minute now, and gold will go to zero, so Cyprus - please sell your gold to the Troika, Russia, Goldman or China now before it plunges to triple, double, single, or zero digit range.

* * *

The rest of the overnight action recap comes from Deutsche's Jim Reid:

Ahead of us this week is a busy seven days of politics, earnings and economic data. On the earnings side, about a quarter of the S&P500 by market cap will be reporting quarterly results. Setting the tone on the macro side will be the Q1 results from many of the big banks including Citigroup who report today before the US market open. This will be followed by Goldman Sachs tomorrow, Bank of America and American Express on Wednesday and Morgan Stanley on Thursday. Outside of the financials, we also have a number of tech giants including Google, Microsoft and IBM reporting earnings on Thursday. Corporate bellwethers Coca Cola (Tuesday), General Electric and McDonalds (Friday) are also scheduled to report this week.

In Europe, the Italian parliament will be holding its presidential election on Thursday April 18th to elect a successor to Giogio Napolitano. Numerous names have been floated as his successor including former Prime Ministers Romano Prodi and Giuliano Amato, and former EU Commissioner Emma Bonino, but no clear favourite has emerged. A two-thirds vote is required on any of the first three rounds of balloting, after which a majority suffices. The process is expected to last several days.

Elsewhere we can expect more rhetoric about currency wars this week as political and business leaders gather in Washington for the World Bank/IMF spring meetings beginning this Friday. Over the weekend, the US treasury fired the first shot, urging Japan to “refrain from competitive devaluation” in its semiannual foreign currency report to congress. The Treasury report also urged Japan to adhere to international commitments “to remain oriented towards
meeting respective domestic objectives using domestic instruments”. The Treasury found that no country met the legal standard to be designated a “currency manipulator” but said that China’s renminbi “remains significantly undervalued”.

We’ll preview more of the week ahead a little later, but first returning to Friday where earnings beats from JPMorgan and Wells Fargo failed to spark the S&P500 (-0.28%) to its fifth straight positive session. Perhaps weighing on investor sentiment was the commentary from both banks around sluggish loan demand and net interest margins. Away from earnings, there was no mistaking that Friday was a weak day for US data. Both retail sales (-0.4% vs 0% expected) and consumer sentiment (72.3 vs 78.6) disappointed to the downside, renewing fears of another mid-year seasonal slowdown in US data.

In terms of retail sales, downward revisions to both January and February numbers perhaps hinted at the effect of higher tax rates on consumer spending. Meanwhile, the UofM consumer sentiment index fell to a nine-month low. The index of six-month expectations decreased to 64.2 this month from 70.8 in the prior period. We’ll get further indication on the direction of US data with the Empire manufacturing survey today.

In terms of price action, commodities continued to underperform other risk assets on Friday. Indeed, if we look at a longer time horizon, the S&P GSCI index has underperformed the S&P500 by about 15% in the year to date as the commodities complex continues to decouple from equities. The most notable move was gold which closed 5% lower in its largest one day drop since 2008. The precious metal has lost about 20% since the October 2012 peak. Brent (- 1.1%) and copper (-2.4%) also had soft trading sessions on Friday, a move which has been exacerbated by lower than expected Q1 growth numbers from China overnight.

China’s GDP growth was 7.7% year-on-year for the first quarter which was lower than the median Bloomberg estimate of 8.0% and lower than the 7.9% growth seen in Q4 2012. The monthly activity indicators also disappointed with industrial production (9.5% vs 10%), fixed asset investment (20.9% vs  21.3%) and retail sales (12.4% vs 12.5%) all coming below expectations.

The market reaction to the Chinese data has been negative with most major Asian bourses trading about 1-2% weaker overnight. Across the region, commodity stocks are leading declines on Monday including 4%+ falls in mining giants BHP and Rio Tinto – partly in reaction to the Chinese data but also taking the lead from last Friday’s price action in commodities. The ASX200 (-1.2%) is underperforming other indices on the back of weakness in miners, and is under further pressure with the weak Chinese data. The AUD is 0.7% weaker against the greenback. Declines in oil (-2.1%), copper (-1.9%) and gold (-2.5%) are continuing this morning.

In the EM space, acting President Nicolas Maduro was elected as Venezuela's president with 50.7% of vote, the national electoral office said after more than 99% of the ballots were counted. The opposition's Henrique Capriles Radonski had 49.1% of the vote. The head of the country's electoral council said that the "results are irreversible" (Bloomberg).

Turning to the day ahead, as discussed earlier the US dataflow continues today with the Empire manufacturing survey and NAHB homebuilders index. Citigroup reports earnings before the opening bell. Over the rest of the week, the IMF will publish its World Economic outlook on Tuesday and its semiannual Global Financial Stability Report on Wednesday.

Beyond today, the US data calendar highlights are tomorrow's CPI, building permits, housing starts and industrial production reports; followed by Thursday’s jobless claims. Also due on Thursday is the Philly Fed survey. The Fed’s latest Biege Book will be published on Wednesday. The European data calendar is relatively light with the German ZEW survey tomorrow the major data release of note. The BoE publishes minutes from its last meeting on Wednesday. Spain will auction bonds on Thursday. The Chinese government provides an update on property prices on Thursday. In Japan, the key prints include industrial production, machine tool orders (Monday) and trade (Thursday).

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Spider's picture

We're hititng the cost of producing an ounce of silver in the mid $23's - time to keep on buying physical because production will be dropping with record US mint sales.  This is very like 2008...

Zer0head's picture

just remember what PMs did after Lehman

Spider's picture

I'm worried about a COMEX default now - if physical sales stay strong at these price levels, I think someone may not be able to deliver physical...

TeamDepends's picture

You should be worried!  Blythe only wants what's best....

gaoptimize's picture

I didn't pay attention over the weekend, so when I got in this morning, my eyes popped at the price.

8:05: Frantic call, desperate, impassioned plea to the wife for approval for 1 more 100oz. JM bar

8:10: Vicious, reluctant approval

8:11: At APMEX web site, can't reset password from work.

8:13: On hold awaiting sales person (3 minutes)

8:18: Locked in.  Great relief.

I like APMEX.

Divided States of America's picture

So shit China Macro data affects Gold prices more than US Stock Markets? WTF, everyone has been touting China as the source of the global recovery, I would think that if the world economy goes into the shitter, Gold would be a safe haven.

Pinto Currency's picture

This all started with Cyprus and the negative leverage from assets being pulled from the banks and financial system worldwide.

Even jacking up registered inventories won't be enough to avoid physical default.

TwoShortPlanks's picture

ING: "Gold collapse has sparked some unwind in USD/JPY"

Nooooo.......Ctl+Alt+P at the BoJ all last week was the trigger for that gun ya fucking blind dick head.

bernorange's picture

Supply is tightening in the physical market.  Dealers are selling out and having trouble/delays sourcing new inventory.  Premiums for silver are rising.  I expect the same will happen soon for gold.  The paper markets might be crashing, but it looks like the physical markets are drying up.

NeedleDickTheBugFucker's picture

It's only natural that premiums rise on physical PMs when prices are declining.  It's the only active means a dealer has to maintain his profit margin and not sell at a loss.  In terms of supply tightening, it could also be that dealers are simply refusing to sell their inventory at current depressed prices, particularly if it would result in an economic loss due to their inventory purchases at previously higher prices.

ncdirtdigger's picture

Any dealer that doesn't hedge his/her inventory won't stay in business long enough to worry about what their premiums should be. If they rely on raising their premiums to make up for inventory costs they lose customers. Not a good business plan.

NeedleDickTheBugFucker's picture

You raise a good point about hedging the cost of inventory.  Still, I assume dealers are "net long" to some degree even with hedging and so benefit from rising prices (and hurt by declining prices).

EDIT - customers seem indifferent when it comes to dealers raising premiums.

wisefool's picture

BTFD reloaded.

This will be the script for all MSM financials and even "news" channels this week.

GetZeeGold's picture



Sell your real money.....for paper.


Now....about your 401K.....we might need to borrow that. This healthcare crap is turning out to be a tad bit more expensive than we thought.


The funny part about that is a year didn't even think that would have been do you feel now?

ParkAveFlasher's picture

That's OK because I've been "borrowing" from my 401k. 

caconhma's picture

Here is the answer: "gold tumbles an unprecedented 7.8% on 230,000 contracts in one day". These are coordinated FED and ECB operations.

By the way, today silver is down over 10%. Another week and silver will have no value at all.

Shall we expect food and oil free in 2-3 weeks?

As for financial markets, they are casinos with no relationship to real economies.

Now, with their $3T+ reserves, China can buy all gold, silver, and commodities available in world. 



Acet's picture

Good luck finding physical at the current prices - I'm seeing coin shops offering to buy coins for more than their gold content price and sell premiums upped all the way to 10%.

If this is the paper crash we all expected then it's bound to accelerate because:

  1. If paper price is indeed decoupling from physical price then there is an arbitrage opportunity of getting physical at the lower paper price (and selling at a higher physical price) by buying paper and demanding delivery.
  2. Higher demand for delivery increases the likellyhood that neither the paper-shorts nor Comex have enough Gold to satisfy physical delivery demands. As the paper increasingly percieves that the risk of Gold IOUs versus "in-hand-now" Gold is much higher, then the price of Gold IOUs will go down.
  3. Lower Gold IOU prices will makes the arbitrage opportunity listed in #1 even more appealing.

Positive feedback cycle, Bitchez!


Dr Benway's picture

There is no problem buying physical gold at the usual spread to spot here in Australia. I would imagine that the same goes for the US. 

defencev's picture

Of course, there is no problem in buying physical.These idiots here live in Wonderland. But who cares? Ignorant, worthless idiots will end up with nothing, as usual...

Imminent Crucible's picture

"Ignorant, worthless idiots"

ROFL! This is a case of the pot calling the snowflake black. "There's no problem buying physical"--as if you had a clue! is one of the largest gold and silver bullion dealers in the country, and they're already out of many gold items, and almost all silver items.  Scroll down that list, junior:

Before they ran out of Silver Eagles, the premium was up to spot PLUS SIX BUCKS. I can tell you're not very old. This is exactly what we saw in the last gold and silver raids. The premium on silver eagles and maples ran up to $7 over spot, and then they were out.

This is nothing new. In March 2008 silver ticked $21, and then it fell for months until it dipped below $9 in Oct 2008. I was buying in the 9's, 10's, 11's.  Oh, the gold and silver bull is over. Alas! Alack! Prithee, what shall we do, good sirs? I think I'll swap the silver eagles that cost me $5 in 1990 for paper FRN's. The Fedwipes have held up so much better over the years.

Peter Pan's picture

I inquired of a large bullion dealer how they could be selling at these beaten down prices assuming they had bought the stuff for more. The answer was that because they held a lot of stock they had hedged, thus enabling them to continue selling stock which they had bought at higher prices for less than they had bought it.

When they deplete, it will be interesting to see what happens next.

TeamDepends's picture

Nobody stands for delivery, it's unheard of....

The Shootist's picture

Silver, holy shit! Back up the truck!

zuuma's picture

Wait a minute...

The TV news "experts" agree that everything's fine.

The strengthening Obama recovery is causing PMs to fall in value.

Wonderful news!!!

So I went to my local coin dealer to take advantage of the plunge in prices. Mr. Goldbrix wouldn't sell to me at the futures price.

He still wants $37 each for AG Eagles -- and is almost out of stock.

So, ZH ers, when cash commodity markets decouple from the futures markets is a parabolic price swing imminent?

What's really going on

Supernova Born's picture

This is the Central Banks going full retard and thinking they'll win a Nobel Prize.

They freaked the fuck out when the March payrolls missed so badly.

CompassionateFascist's picture

I love the smell of napalmed ETF's in the morning. And in about 5 hours I'll be visiting my local coin dealer for a bargain price on 100 silver oz. of the real thing. 

mayhem_korner's picture



If you're buying physical, they may not be as much of a bargain as you think.  Premiums are high.  It's called "decoupling."

CompassionateFascist's picture

Yeah, I know. At this particular dealer there's pre-2012 ASE's for spot plus $2. Sometimes a little tarnish, but have a kit that removes it. 

bernorange's picture

Don't use tarnish removers on silver coins.  Tarnish isn't hurting anything.

Also, good luck buying silver from your local coin shop (LCS).  Mine doesn't have any silver bullion left - only numismatics.

GetZeeGold's picture



Tarnish proves it's really silver. Only a mother could love a butt ugly 1000oz trading bar.

Croesus's picture

I would love a mother that gave birth to 1000 oz. bars.....


OutLookingIn's picture

Use baking soda & water.

Line bottom of shallow glass dish with aluminum foil.

Add 2-3 heaping tablespoons of baking soda. Add warm water to 1/2 inch depth.

Lay silver coins on top of aluminum foil and wait/watch. Before your eyes - tarnish is gone.  

Papasmurf's picture

Tarnish remover can ruin the tasty chocolate inside the foil wrapper.

Hobbleknee's picture

15,45% premium for maples at the place I order from online, and 20,10 % for eagles.


EDIT:  It's up to 20% on maples and they're out of eagles now.

farco's picture

18% here on the Maple leaf, with 3 weeks before delivery...

20% on the american eagle

SmallerGovNow2's picture

APMEX about $5 over spot or about 20% + over spot...

FeralSerf's picture

About 5% at Tulving for Gold Eagles.

hawk nation's picture

wire transfer comes in to account in am and spend the pm at the coin dealers buying gold and silver. I like christmas in spring

Sudden Debt's picture

I'm totally tapped out right now. I've put everything I got in PM's.

Kind of sucks right now...

My next big buying opp will we october.... that's a long time from now...

Max Hunter's picture

That's and eternity in the silver market..

Fred C Dobbs's picture

Satirday afternoon my coin shop was out of all 10 oz bars, 100 oz bars and government issued one ounce coins.  I saw the last 32 Maple Leafs leave.  They had silver rounds but those were going too. 

johnnymustardseed's picture

Producers should withhold prodution and punish the banksters paper metals....

CompassionateFascist's picture

Well, with that mine cave-in US silver production just went down 16%. Excellent. 

MythicalFish's picture

I don't mind a little volatility, but what irks me is those Socgen dingbats highfiving each other now.

Ghordius's picture

weak hands: meet the 2013 "shake the baby" moment