Gold Down In February – Weak Hands Sell On Poor Sentiment; Smart Money Holds Or Adds To Positions
Friday, 1 March 2013
Gold fell 5% in February due to dollar strength, reasonably positive economic data, aggressive selling of paper gold on the COMEX, and poor sentiment.
Despite the very negative sentiment, gold was more resilient in other fiat currencies. In euros and pounds, gold only fell by 1.1% and 0.7% respectively. For the month, gold fell just over £8 from £1,049/oz to £1,041/oz and from €1,225/oz to €1,210/oz.
Gold is oversold on a host of benchmarks, including the relative strength index (RSI), and sentiment is the worst we have seen it in recent years. Therefore, gold is due a bounce. Support is at $1,540/oz and below that at $1,470/oz.
It is worth remembering what the genesis of the sell off was. Once again, more speculative players on the COMEX sold gold futures aggressively during and after the Chinese New Year. Gold was vulnerable at this time due to the complete absence of Chinese demand for physical for those few days.
This initial selling and gold weakness may have contributed to record liquidations in the SPDR gold ETF in February.
As did the misguided belief that the worst of the crisis was over and it was time to jump into riskier assets like stocks again. Gold sentiment deteriorated after the initial falls and continued to worsen after the loud pronunciations of the end of the bull market by Goldman Sachs and some other banks and the much heralded ETF liquidation by Soros in the fourth quarter. Soros’ trumpeted liquidation in the fourth quarter was very small compared to the net inflows of $3.5 billion into GLD during that same quarter.
The significant ETF liquidations in February underscore the weakness in gold sentiment among retail investors that has been prevalent recently.
Our trading desk was the busiest it has ever been on the sell side in February as retail investors sold out of nervousness due to the price falls. High net worth selling was minimal and wealthier clients were more active on the buy side – especially this week.