However, as mentioned, the main driver behind gold’s recent weakness has been the “dash for cash”. A move that was strengthened by the elevated leveraged positions that had been built up in gold during the past few months. In my latest COT report covering the week to March 10 I highlighted how deleveraging had become the overriding theme with both long and short positions being reduced. The biggest long reductions were seen in crude oil, gold, sugar, cocoa and cotton while short-covering was seen in natural gas, soybeans and corn.
The open interest in COMEX gold futures has dropped to 573,00 lots, the lowest since last July. A sign that positions, both long and short have now seen a significant reduction from the January peak at 800,000 lots.
The difficulty in fully understanding the sudden weakness and temporary loss of safe haven status have raised some concerns that the link between cash and paper is under pressure. While paper gold has seen a significant amount of selling the cash market has reacted to developments across the different regions. Discounts have been offered in Asia and India while dealers in Dubai have noticed a premium in recent days. Overall we conclude that the Covid19 has triggered a significant disruption to supply chains and logistics. Major buyers have temporary close down their borders while others have witnessed a slump in demand. Against these developments the supply chain is also severely stressed with shipments being held back and not reaching their destination, in this case Dubai.