The Trillion Dollar Gold Crash

The massive sell-off in the gold market during the last two trading sessions has inflicted well over $1 trillion in losses for global holders of the yellow metal – this is the most “oversold” that gold has been in a very long time:

Click to enlarge

Gold_4.15.2013

A few key points about the gold crash:

  • Today was the highest volume in gold futures on record (according to my data)
  • Gold futures volume was roughly 150% of the open interest
  • GDX (Gold Miner’s ETF) traded record volume
  • Gold closed well below its lower 3-standard deviation Bollinger band – I can’t find another sell-off of this magnitude & velocity on the gold charts
  • My bullion dealer contacts tell me that there was hardly any selling today and that they are very low on physical supply – one contact said “we are seeing a lot of bottom fishing and virtually zero panic selling”

Clearly today’s action was a massive institutional liquidation via the GLD exchange traded fund and the futures market which caused leveraged long players to be carried out of the market feet first. Today’s precious metals liquidation has all the hallmarks of a selling climax but there really isn’t any precedent for the damage we have seen across the commodities space in recent days, so extreme caution is still advised.

Even more so than the gold chart itself, the GVZ (gold volatility index) chart screams PANIC:

GVZ

Finally, it is worth reminding ourselves that market bottoms are powerful events that always occur when market participants stop looking for a bottom – are we there yet?

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