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Record order volumes in the U.S. gold futures market highlighted the intense action in precious metals trading Monday, with the bulk of the positions betting on further declines.

At more than 500,000 contracts, volume in gold futures had already set a record by 11am EST on Monday. Early action was heaviest in May $1,300 put options – contracts allowing the holder to sell an ounce of gold bullion for $1,300 next month (no matter where the spot gold price is at that point). The value of these contracts had surged by more than 2,000 per cent by lunchtime.

The more conspiracy-minded pundits suggested that a large investor, likely a hedge fund, was strategically pushing the gold price lower in huge volume to spook investors into selling bullion. Data provided by Bloomberg, however, showed that manipulation was at least not the entire story. During the week of April 12, outflows from the U.S.-traded SPDR Gold Trust reached $2.5-billion, providing a clear indication that many investors were throwing in the towel on the sector.

Institutions were similarly minded. Inventories of physical gold held at Commodity Exchange Inc. (COMEX) to back futures trades – by investment banks, ETFs and hedge funds among others – have been in steady decline since late 2012. Since December 12, gold held in inventory has fallen by 25 per cent to 9.2 million ounces. In light of the price action in recent days, it seems likely that the gold market speculation has peaked and begun to subside.

Under normal circumstances, a fierce volume upsurge in any asset would have professional investors calling for a "washout" – a capitulation that would signal a price bottom. In the case of gold, however, there is no price to earnings ratio or other valuation metric to assess whether the price is cheap or not.

In broad terms, market sentiment and the U.S. dollar drive the gold price. When the U.S. dollar falls, investors get more bullish on gold and the bullion price rises. Investors should watch the U.S. trade weighted dollar index (DXY), which measures the value of the greenback relative to America's trading partners, to gauge the future direction of precious metals prices.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.