Gold To Rally Year End As Traders Close Some Of Record Short Positions

Short positions are at multi year highs and if the Fed does not taper when  it announces today (Ed Note: Wednesday at  2 p.m. EST),  we will likely see a large short covering rally going into the New Year as shorts close out positions and balance books at year end.

Bearish bets by hedge funds and money managers in U.S. gold futures and options are close to a 7-1/2 year high, according to data from the Commodity Futures Trading Commission (CFTC).
   
SPDR Gold Trust, the world’s largest gold ETF, said its holdings fell 8.70 tonnes to 818.90 tonnes on Monday – its biggest outflow since Oct 21.
 
Holdings are at their lowest since January 2009 after more than 450 tonnes of outflows this year caused by traders and more speculative investors channelling money towards riskier assets such as equities and bonds which are at record highs in many countries.

Importantly, and little reported on is the fact that the ETF flows have been matched and greatly surpassed by physical gold in China and imports from Hong Kong into China alone.   

Ed Note: White Bars are China Gold Imports From Hong Kong – Orange Bars are Monthly Change in Gold ETF Holdings

Gold has lost 25% of its value this year after 12 years of gains. There are credible allegations that the market was subject to price manipulation with banks manipulating prices lower through massive concentrated selling at times of low liquidity. Allegations that Chinese entities may be manipulating paper gold prices lower in order to buy physical gold on the cheap are gaining credence.

Whatever, the reasons for gold’s price fall it is a healthy development as it has led to the speculative hot money and weak hands being washed out of the market. Gold is on a much more sustainable footing now and is very much in strong hands now, which bodes well for gold in 2014 and 2015.

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