There are typically 3 circumstances unfavorable for gold:
– booming stock market is considered by the average investor as a strong economy, investors are less prone to seek refuge in gold.
– increasing treasury bill yields, above inflation levels, determine funds to move away from gold into bonds.
– high COMEX open-interest, mainly shorts, is a sign that bullion banks pour paper into the gold market to suppress prices.
For the last couple of weeks we had concurrently all the above circumstances, a very good context for gold to fall. Still, gold rose sharply. The explication is that:
– investors are finally understand the record stock prices as a bubble, not a strong economy.
– high bond yields aren’t regarded as safe returns as before, but – given the huge public debt – a risk for government insolvency or debt monetization.
– high COMEX open-interest is a good opportunity for bulls to buy. As for each bank short position, must by a corresponding long (I suppose by a hedge fund). The bullion trading activity of large banks may incur significant loses to them if the price of gold won’t drop. They can’t close the contracts with physical delivery so they have to either close in dollars – that would cut in bank assets – or roll over the contracts by going even shorter. The problem is that if the bullion banks force a gold price suppression, it’ll be too brutal and visible. They can’t go naked short so they have to lease the gold from somewhere.