Many commentators have been confused by the recent open interest readings that we have been getting out of the CME Group detailing the movements of traders into or out of the gold futures markets. They have been looking at the huge increase and have been somewhat baffled at best and downright confused at worst.
While there is no doubt in my mind that it was a series of extremely large sell orders that got this downside ball rolling something else is going on that explains these open interest readings.
The usual pattern that we have seen in the gold market over the last decade-plus bull market has been a build up in the hedge fund long positions as they buy the market which is countered by the bullion banks and swap dealers taking the other side of that trade and going short. At some point, the market stalls in its upward momentum, a trigger occurs, and then the price reverses as the hedgies sell out or liquidate their long positions. This selling is then met with buying or the covering of shorts by the bullion banks and swap dealers.
At some point ...