This highly unsettled backdrop forced the big macro hedge funds – and traders/speculators more generally – to keep trades on short leashes (risk control measures that chipped away at performance). We now see indications that the big players have been unleashed, at least as far as taking – and winning – huge bets against the yen.
Furthermore, despite the seeming underperformance of the price of gold, which I believe has been actively suppressed, this time through the US Federal Reserve communications strategy in portraying the tilting of balance towards the ‘hawks’, the string of record breaking activities as evidenced by record buying of physical gold and silver in the US (first 2 weeks of 2013), record ETF holdings of gold (as of November 2012) and record gold imports of India and China (fourth quarter 2012), aside from milestone third quarter rate of growth in the gold buying of emerging market central banks (third quarter of 2012), suggests of the blatant disconnect between gold prices and real economic activities underpinning the gold markets. Yes some Fed officials have openly been chattering about risks of price inflation!
We can be sure that the massive short position in silver is causing difficulties for the banks concerned, because of the lack of physical supply. Therefore, the bullion banks have an exposure which appears to be out of control. While they frequently conduct bear raids (which are more successful in gold) they face the risk in silver of themselves becoming victims of a bear squeeze. Unusually, they have got themselves into this mess on a low silver price, and it is roughly double the short position than when the silver price was over $40. This being the case, when silver turns up the banks are likely to be very badly squeezed, throwing up enormous losses. Meanwhile, the non-bank commercials have kept a level head and reduced their net short position by 2,268 contracts to 3,616.
Although, so far, with the exception of gold, no trend has moved in a straight line, so it would be natural for gold to undergo a year of negative returns.Nonetheless all these will also depend on the actions of monetary authorities.