Tyler Durden @ Zero Hedge:
While China’s trifecta miss of GDP, Retail Sales and Industrial Production all coming lower than expected was likely a factor in the overnight rout of gold, the initial burst of selling started well before the Chinese data hit the tape, or as soon as Japan opened for trading with forced financial institution selling to prefund cash for any and all future JGB VaR-driven margin calls. It was all downhill from there, literally, with overnight selling of gold punctured by brief burst of targeted stop hunting, sending the metal down $116 per ounce, as spot touches $1385 after trading nearly at $1500 yesterday and down $200 in 4 days. End result, whether due to a re-collapsing global economy, margin calls, fears forced Cyprus gold selling will be imposed on all other insolvent European countries, coordinated central bank slams, hedge fund positioning, long unwinds, liquidations, fears about future demand, or whatever the usual selling suspects are, is that gold tumbles an unprecedented 7.8% on 230,000 contracts in one day, and well over 10% in two days, pushing the yellow metal 14 day RSI band to 18, meaning it is now most oversold since 1999. In brief, it is an all out panic, with Goldman still telling clients to sell, i.e., buying every shiny ounce all the way down (not to mention India, where accordingto UBS Friday demand was double the average).
Below are some banks’ takes on the overnight action via BBG:
Deutsche Bank:
- Unclear at this stage if there’s a clear link between the decline in gold prices and the currency markets; China’s weak 1Q GDP data probably had a more direct impact on currencies this morning than gold, Bilal Hafeez, strategist at Deutsche Bank, says in interview
- Commodity prices underwent some position adjustments on Friday, unclear on cause
- Overall commodity cycle will be important going forward for currencies such as AUD and NZD
Citigroup:
- Impact of decline in gold price was seen in commodity-related currencies like AUD and NZD; some unwinding in the JPY was also noted; EUR and GBP have been largely steady on the gold move, Rohan Ramchandani, head of European spot trading at Citigroup, says in interview
- Gold decline may have been related to some break in technical levels and the general improvement in global risk appetite
- Gold drop may have some more room to run in short-term but in the longer-term, gold should be supported, and likewise the commodity currencies; market has been comfortably long on the gold trade since the financial crisis
Morgan Stanley
- Impact of gold decline on AUD should be buffeted by the easy global liquidity conditions, Ian Stannard, strategist at Morgan Stanley, says in interview
- Expect AUD to hold up in recent trading range even with the decline in gold prices as long as equity markets continue to provide a positive signal and there’s prospect of Japanese asset reallocation overseas
ING:
- While gold should decline in the longer term on USD strength, short-term risk is financial dislocation, Chris Turner, strategist at ING, writes in note
- Pickup in gold volatility may see increase in the 15% haircuts on gold’s use as collateral at major financial exchanges; gold has become a strong source of collateral since the global financial crisis
- Gold collapse has sparked some unwind in USD/JPY
Barclays:
- Plunge in prices of precious metals has caught market attention, suggesting note of caution for risk sentiment in general, Jordan Kotick, global head of technical strategy at Barclays, writes in note
- Break in gold and silver’s multi-year range lows are forcing liquidation across board, not just in USD terms but also when priced in almost any currency
- Markets may unsettle, risk of near-term correction in many recent trends such as JPY crosses, AUD/USD and USD/CAD
SEB:
- Gold collapse on break of 1,522/25 key support has forced copper, oil to take a beating; CAD is weaker while JPY correct seems to be getting legs
In other words, nobody has any idea what is going on, but is piling on to spread the confusion. Which, of course, for those who only care about the ongoing dilution of global fiat, which shows no signs of halting especially with the global economic deterioration accelerating, courtesy of central bank printing, a very welcome opportunity to paper dollar cost-average much lower.
Speaking of deteriorating economics, here is a brief recap of the Chinese data via SocGen:
