Massive Short Covering Prompts for Gold’s Best Day in 11 Months

The precious metals markets have been experiencing extreme volatility. But the pendulum seems to have suddenly shifted towards the bulls

Here is the Reuters: (bold mine)

Gold and silver prices gained nearly 3 percent on Monday after a roller-coaster session that opened with a gut-wrenching dive in silver to its lowest in 2-1/2 years before an abrupt midday turnaround.

After trading lower through most of the day, gold suddenly lurched more than $10 an ounce higher around noon U.S. time, with traders citing a wave of pent-up short-covering after seven consecutive days of losses. Also, COMEX silver futures had plunged more than 9 percent after a big sell order at the open, triggering technical buy signals, they said.

Yet this is one of the very scanty reports that covered gold’s fantastic one-day bounce. 

It looks like most media, whom has been preaching of "the end of the gold bubble" meme, went into a blackout with gold’s single day comeback. 

I know, this may be a short-term dead cat's bounce.

The chart from the Zero Hedge reveals of the massive intraday swing from a test of the mid-April low to the 3% gain which accounted for as gold’s best day in 11 months

It is interesting to note that gold’s bounce comes amidst a RECORD pile up of Wall Street shorts;

Here is the Bloomberg: (bold mine)

The funds and other large speculators held 74,432 so-called short contracts on May 14, U.S. Commodity Futures Trading Commission data show. That’s the highest since the data begins in June 2006 and compares with 67,374 a week earlier. The net-long position dropped 20 percent to 39,216 futures and options, the lowest since July 2007. Net-bullish wagers across 18 U.S.- traded raw materials rose 1.1 percent to 588,482, led by gains in hogs, corn and cotton.

And this also comes amidst the escalating divergence between the supposedly larger physical markets, but which Wall Street has overpowered through the use of massive leveraged derivatives

More from Bloomberg:

Gold premiums in India, the world’s biggest buyer, more than doubled to $40 an ounce May 15 from $17 to $18 a day earlier, according to Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation. China’s bullion demand jumped to a record 294.3 tons in the first quarter, the World Gold Council said in a report May 16.

India's remarkable doubling of the premium in just a few days has partly been due to the Indian government's stepped up war on gold. 

Nonetheless skyrocketing premiums in the physical markets signifies as the accelerating imbalances between very strong demand and an enfeeble supply coming from reluctant sellers (gold prices are determined by reservation price model and not by consumption)

Here is what makes things interesting; what has prompted for the “wave of pent-up short-covering” in the light of the record position of Wall Street shorts, even as Wall Street’s gold inventories has been rapidly depleting?

While the mainstream attributes the rally to superficial "seen" or "rationalized" factors--such as yesterday’s "reversal of the strength in the US dollar" or "weaker stock markets" or “crowded trade”, could it be that increasing demand for physical deliveries from Wall Street serve as the “unseen” or “invisible” factor?

If the latter holds sway, then the current concerted acts of gold suppression by Wall Street-goverment cabal may be losing its energy.

Things are getting to be more and more interesting.