Gold was largely unchanged yesterday after rallying to as high as $830 and has traded sideways in Asian and early European trading.
Open interest levels in gold and silver on the COMEX have fallen to extremely low levels showing that nearly all the speculative froth has been liquidated and remaining longs are “strong hands”. The gold open interest fell a very sharp 5533 contracts to 282,978 which is a new low and low levels such as these usually portend lows in the gold price and subsequent rallies.
Gold has rallied by $135 per ounce in recent days and yet the open interest has gone down showing that much of the move was created by shorts closing their positions. This will encourage more long interest to enter the market and should contribute to markedly higher prices in the coming weeks.
Especially as the supply demand situation remains extremely bullish with gold mine supply continuing to fall, western central bank gold sale supply falling and with investment demand and central bank demand (particularly creditor nations such as Russia and China) continuing to increase their gold holdings.
Quantitative easing, humongous money printing and the massive injection of trillions of dollars, pounds, yen, euro and other fiat currencies into the global economy is very bullish for gold in the medium to long term as the purchasing power of all fiat currencies is likely to fall sharply in the coming months and severe inflation will likely ensue once the vicious deflation seen recently abates.
An example of one such currency that is already coming under significant pressure is the British pound which has fallen sharply in recent months. The dollar has rallied on massive deleveraging and dollar debt liquidation in recent months – this has seen the euro and sterling fall sharply against the dollar. Since gold surged to record highs of $1,030/oz at the outset of the crisis, gold priced in dollars has fallen some 21% (from $1030 to $816). But it is important to remember that the euro fell 18% and the pound by an even larger 22% against the dollar.
Stock markets have fallen far more sharply with many down by more than 35% as seen in our performance table and by even more when calculated (as they should be) in local currency terms.
So while gold has fallen from record highs by some 21% against the strongest currency in the world in recent months – other currencies have fallen by as much or by far more (eg. Iceland and other emerging markets). Gold priced in pounds, euro and other currencies has rallied to new record highs and thus non US based investors have been doing very well in recent months despite the financial and economic crash.
Since January 2nd 2008, gold is up 10% in euro terms and 26% in pound sterling terms (EURGOLD €573 to €630 and GBPGOLD £424/oz to £534/oz ) proving once again that gold remains an important diversification and an important safe haven asset in the medium to long term.
Gold has done exactly what it should do in a financial and economic crisis – it has outperformed other asset classes and preserved the wealth of those who have prudently diversified.
