Last Updated : 16 April 2013 at 08:45 IST
“There has been no single fundamental catalyst for the panic selling in the gold and silver markets the past two trading sessions. Worries about demand for physical gold from China and India are getting some of the blame for the mass exodus of longs out of the gold and silver markets.
Overnight, China reported its economy grew slower than expected during the first quarter, at 7.7% versus the expected rate of 8% annual growth.
There are also worries about troubled European Union countries selling their gold reserves to help finance their financial bailouts from the European Central Bank and the International Monetary Fund. Cyprus government officials last week said selling part of that financially imperiled country’s gold reserves was on the table.
Last week’s Federal Reserve FOMC meeting that signaled Fed members are divided on when to end the Fed’s quantitative easing of monetary policy also spooked the raw commodity market bulls.
Exchange traded funds (ETFs) for gold are also reportedly seeing very heavy outflows as investors cash out losing positions and are seeking other investment assets.”
When one reads the above said paragraphs that appeared in Kitco article on gold and silver, one cannot help but wonder how easy it is to attribute a reason to the selloff. Of course, the said reasons must have aided the selloff, but is that all? Now panic selling prompted by fear may be ruling the markets, but is that all? Why everybody is silent on the hedge fund exodus which apparently triggered this market mayhem?
"The hedge funds are increasingly migrating to US equities and Japanese equities. They are momentum players, and where they see growth, they go to that place." said V.K. Vijayakumar, Chief Investment Strategist, Geojit BNP Paribas based out of South India's Kerala, yesterday.
"It is as simple as that." he had noted.
While the power of small-scale investors is formidable, the inter-state players like hedge funds can swing markets widely and wildly; it may not be manipulation, but with billions in their kitty, they hold that kind of firepower.
When they decide to buy, the markets climb; when they decide to sell, the markets go down. ‘Poor’ individual investors, the fringe actors, just play according to the tune and either reap in marginal benefits or cry on significant losses.
It is just herd mentality. Now it is fear that has gripped the markets…
But what is unique about the current development is the fact that it does show the upside possibility in gold as much as it shows the downside. If gold can assume an escape velocity and traverse into bearish space in three days, it can do the same and one day traverse into a bullish space in a matter of just another three days. But that escape velocity and its timing is a multi-billion question whose answer is best known to hedge funds.
They know when to fire the booster rockets and when not to.
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