Did a Bear Raid Hit the Gold Market?
Where to start on this brisk Melbourne Friday the 13th morning? Gold copped a beating overnight, the S&P500 bumped up against an invisible ceiling, and Vladimir 'peacenik' Putin penned an op-ed article in the New York Times. In Australia, we saw that employment fell yesterday while the property boom rages on.
Let's start with gold. While we know banks and governments manipulate interest rates, currencies, elections, wars and just about everything else in this financialised and brain-dead world, there seems to be great resistance to accepting that the gold market may also be the subject of a push this way or that.
Well, if you're still having doubts, check out this MarketWatch story. In the very early hours of New York trade, 2.54am to be precise:
'...about 2,000 December gold futures contracts traded in a second, taking prices down from $1,354.80 to $1,344.50 and a trip in the circuit breaker shut down trading for 20 seconds.
'Nanex said on its website that a closer look at the data reveals that the action was mostly likely caused by one large order to sell at the market.
'The large order came "completely out of the blue," said Eric Hunsader, a spokesman for Nanex. "There was very little other activity around that time."
'The halt was the "longest I've ever seen for major commodity futures," he said, adding that 5 seconds is the norm.'
The sell order happened to arrive while gold traded just above the important support level of US$1,350, so the smash through that level set off a whole bunch of stop-loss selling. More selling took place when the main market opened up later in the day. Whoever the early bird was, it certainly got a big fat golden worm in US trading yesterday.
A 2,000 contract sell order means 'someone' wanted to sell the equivalent of 200 tonnes of gold -instantly - in a market where there was no one around to take up the offer. Sounds like a co-ordinated bear raid to us.
Of course, no physical gold changed hands. It was just paper trading. But the thing is, if the dumping of contracts represented a 'naked short' (meaning the seller doesn't have any gold but the buyer may request delivery of gold at the end of the contract) then the seller will have to buy back the contracts before expiry in December.
Clearly, the bear raid is designed to inflict technical damage on the charts (which it has done) and bring more sellers into the market, making the bear raid even more profitable. The sellers will eventually have to cover their 'shorts' by buying back the contracts, but where the buying starts (below US$1,300?) depends on how much follow through weakness we get.
Regards,
Greg Canavan+
for The Daily Reckoning Australia