So Who Sold All That Gold? - JPM's Own Version

Since prevailing fringe theory is that JPMorgan and the other bullion banks 'control' the price of gold, we thought it would be interesting to hear yet another explanation for last week's monumental precious metal market events... from the horse's mouth...


Via JPMorgan,

Who sold the gold?


Gold’s 1 day fall of 9% on Monday was one of the largest 1-day falls in the history of the gold market, but what do we know about who was selling?


We have three high frequency flow indicators for the gold market: CFTC futures positions, Gold ETFs and gold coin sales in the US. Of course, these only make up a portion of gold demand but the remaining physical demand is difficult to capture on a high frequency basis.


The peak in gold ETF holdings of physical gold was actually in December 2012 and there have been reasonably steady outflows since then. In contrast, the peak in the gold price was in October 2012 and it has been falling steadily since then.


Additionally, the outflows from gold ETFs have continued in the latter part of this week, even though the gold price has rebounded some 4%. Looking further back there has not been a strong correlation between ETF flows and gold prices on either a high or low frequency basis. ETFs do not seem likely to have been the culprit here, although Monday’s $1.8bn outflow undoubtedly didn’t help.


[ZH: It would seem the data in the chart above suggests that JPM is incorrect and ETFs were very responsible - as the momentum from the Q4 to Q1 divergence corrects]


Sales of American Eagle gold coins, perhaps an indicator of retail investment demand, have actually risen sharply over the past two weeks.



Total sales so far in April are 153,000 ounces, already the highest month since mid 2010, and we still have two weeks to go.


[ZH: It seems - unlike stocks - that a falling price does encourage more demand]


That leaves CFTC managed money futures positions. Unfortunately, we only have data up until last Tuesday, the 9th of April, so not including the sell-off period itself. However, there has historically been a strong correlation between changes in these positions and changes in the gold price, so it seems likely that CFTC positions will also have fallen sharply, but we have to wait until next week to know for sure.


[Updated chart below shows the exact opposite]



[ZH: The updated chart above suggests that this was not the case as net long positions actually rose on the week...]


In summary, of the three high frequency indicators of gold demand at our disposal, it seems likely that futures investors will turn out to be the biggest sellers over the sell-off period. Of course this doesn’t tell us anything about causality, especially as we are missing a large part of the physical market. Anecdotal reports suggest that physical demand, driven by China was very strong in the days following the sell-off, so this may well be what has allowed prices to stabilize at current levels.

Hhhhmmm - doesn't seem so convincing...


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