During a dramatic couple of hours in the New York yesterday gold tumbled to the lowest level in more than a month. The 100+ dollar drop was the biggest since 2008 and it was kicked off by a speech from the U.S. Federal Reserve Chairman Bernanke. In a speech about the economy he chose not to mention anything about additional stimulus and it left analysts wondering whether the Fed’s commitment to low rates until 2014 will actually happen. Looking at the chart below, we can see that the price action yesterday almost removed all the gains that has been achieved since Bernanke spoke about those low rates until 2014 back on January 25. Many new speculative positions had been initiated above 1,700 and once the support at 1,760 gave way the scramble for the exit triggered an exodus with volumes exploding at the same time. Overnight the market has managed to stabilize above 1,700 and in the coming days traders will look out for the potential return of physical buyers who have been pretty much absent during the latest rally. The move however does bring back memories about silver's collapse last year and although we believe gold will continue to make progress during 2012, it is now clear that a repeat of last year’s strong rally may elude us. Money managers have been very slow in rebuilding speculative long positions after the Q4 2011 setback, and this move yesterday will not help their conviction. On a positive note, investments in exchange-traded products rose to a new record of 2,403 metric tonnes according to Bloomberg, indicating that long- term and retail investors still have not lost their love affair with gold. Any major change in these holdings over the coming days will be interesting to follow.

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