Dennis Gartman Blog and News SPOT GOLD: Gold fell relentlessly, ostensibly on the news that the ECB might well “taper” its purchases of sovereign debt securities. With the Chinese removed from the market because of the National Week/Golden Week celebrations, and with the Indians reticent for whatever reason to step into the fray, gold had sellers everywhere without buyers of consequence. Do we think gold is overdone on the downside; yes, we do indeed, but so much technical damage has been wrought that any bounces toward $1292-$1297 will prove to be formidable resistance on a first bounce. For now, we have wounds to lick and heal.
As for gold and the other precious metals they remain rather obviously weak and as we move away from Tuesday’s collapse it appears more and more that this was a forced liquidation on the part of a large… actually a massive… hedge fund out of London. The sheer panic that swept through the gold market then really hadn’t the look of a sell off predicated upon a rumoured push by the ECB to curtail its purchases of sovereign debt securities, nor had it the look of a rush on the part of hedgers in the gold mining industry to hedge forward production. Rather it had the look of forced margin-clerk liquidation. It looked like panic on the part of someone, somewhere who had lost control of the situation.
Reading through the always interesting… but usually openly anti-everything and especially anti-TGL… ZeroHedge comments, we came across the following regarding Mr. Crispin Odey and the troubles he and his funds have been having of late. ZeroHedge wrote
In mid-August, when the market was enjoying its low-volatility grind higher, we observed that one of the biggest bears in the hedge fund industry, Crispin Odey, was having a bad year, with his hedge fund sinking some 30% through the end of July. Since then, conditions have only gotten more precarious for the billionaire hedge fund manager, and as the FT writes, for Odey, who is betting it all “on a violent unwind of a QE bubble”, the endgame may have arrived.
As Miles Johnson writes [for the Financial Times], “many financial commentators have warned that current monetary policy has inflated a bubble that will one day violently pop. Few of them have risked money betting on the precise manner in which a chaotic unwinding of quantitative easing will play out through financial markets. This makes the portfolio of Crispin Odey, a London-based hedge fund manager, an interesting outlier. Mr. Odey is one of only a handful of investors who has backed up his dire prognosis for the global economy with a series of large, leveraged trades designed to pay off in the event of a crash.”
To be sure, as we noted two months ago, Odey's bets are predicated on a collapse of Japanese bond prices, a surge in the price of gold and immolation of equities. Or as the FT puts, it, “If it works he may make hundreds of millions of dollars for his clients. If wrong his fund may not survive.”
We are not rumor mongers here and we do not like to report on other people’s problems for we’ve plenty of our own errors and sins to account for; but the fact that much of this was reported in The Financial Times allows us to speculate that Tuesday’s sell-off did look like liquidation rather than fundamentally warranted selling. This view is further supported by the fact that the open interest in the COMEX futures has fallen by more than 4% this week, suggestive strongly of forced liquidation and a throwing up of the hands… and of the stuff in one’s stomach.