Manipulative Gold ‘Fat Finger’ Or Algo Trade Worth 1.24 Billion USD

Published in Market Update  Precious Metals Update  on 1 May 2012

By Stephen Flood

Gold’s London AM fix this morning was USD 1,661.25, EUR 1,253.02, and GBP 1,024.70 per ounce. Yesterday's AM fix was USD 1,662.50, EUR 1,256.61 and GBP 1,021.44 per ounce.

Silver is trading at $30.85/oz, €23.37/oz and £19.10/oz. Platinum is trading at $1,570.00/oz, palladium at $677.60/oz and rhodium at $1,350/oz.

Gold rose $3.80 or 0.23% in New York yesterday and closed at $1,666.10/oz. However, there were more peculiar goings on in the gold market which saw one massive sell order knock prices lower, prior to gold gathering itself and moving higher.

Cross Currency Table – (Bloomberg)

Bullion traded sideways in Asia before slight weakness and has dipped marginally in early European trading.

Gold may complete its 6th day of price increases, its best run since August, as business activity in the US expanded at its slowest pace since November 2009, creating demand for gold as a heading instrument and a safe haven. 

Gold’s technicals are mixed after April’s slight loss (-0.2%) meant that gold has now had 3 consecutive monthly losses - the first since 2000.

However, gold has a bullish outside reversal week last week and the higher quarterly close of a 6.7% gain in Q1 2012, and 11 consecutive years of annual gains mean that the long term technicals remain favourable.

Bullion is now 6.5% higher this year and heading for its 12th straight annual advance as demand continues as a hedge against inflation and central banks continue to debase fiat currencies. 

Fed Chairman Ben Bernanke said April 25 that he’s prepared to “do more” if needed to spur the economy.

Investors are watching weekend elections in France & Greece and a European Central Bank meeting on Thursday, after data showed that Spain sank into recession in the first quarter.

Palladium hit its highest price in 6 weeks and is trading near $686.75/oz.

Manipulative Gold ‘Fat Finger’ Or Algo Trade Worth $1.24 Billion
The gold market was briefly shaken by an unusually large early morning sell order, which triggered a brief trading halt in gold futures and left traders questioning whether the transaction was a mistake and the motivation of the seller.

Gold 3 Day Chart – (Bloomberg)

Gold fell $14 in one minute despite no breaking financial and economic news and despite no movement in the dollar, oil, equity or bond markets.

There was only the insignificant personal income and spending numbers – which came in slightly better than expected and could not justify such quick falls.

CME Group Inc's Comex division recorded an unusually large transaction of 7,500 gold futures during just one minute of trading. The sale took out blocks of bids as large as 84 contracts in one fell swoop and cut prices down $15 to $1,648.80 a troy ounce.

The sharp losses triggered a 10-second trading halt in June-delivery gold futures, CME told Dow Jones Newswires Tatyana Shumsky.

"The market was given a short period to recalibrate and ... it was for 10 seconds," a CME spokesman said. "It only happened in gold futures, in the June gold contract."

Gold traders buzzed with speculation that the transaction was an input error - a so-called "fat finger" trade. "Or a Gold Finger as it might be known in the bullion market," traders at Citi joked in a note to clients.

The massive size of the transaction - 750,000 troy ounces worth more than $1.24 billion – led to speculation that it was either a mistake by a trader or that an entity wished to manipulate the market lower.

Such large trades have frequently been seen at month and quarter beginning and ends. Yesterday was the last trading day of the month. They have also been seen when Ben Bernanke has been making important statements regarding the dollar and the outlook for the US economy.

The nature of the massive sell order, one of many seen in recent months, suggested that the seller was not motivated by profit and may have had other motives. Such large trades are rarely conducted amid very thin trading volumes.

Trading yesterday was expected to be quiet as market participants in China and Japan were out on holiday and many European traders were preparing for May Day holidays today.

"No one who has the account size and the money to trade thousands of gold contracts would do it in one transaction; that's just stupid," said one trader.

Silver 3 Day Chart – (Bloomberg)

It seems likely that the seller was either a large hedge fund or institution as the collateral required to purchase 7,500 contracts is high. The seller would have had to have deposited $ 75.9 million in cash with a broker.

There was a suggestion in the Reuters Global Gold Forum that the selling may have been due to algorithm trading or computer driven.

The trade could be as a result of the shift to electronic trading. Computer trading systems are vulnerable to input errors, as they do not ‘question’ the order before executing the transaction.

By contrast, when most order flow would pass through the Comex floor where human traders processed the deals, potential errors stand higher chances of being intercepted and there is a higher level of transparency.

"You would definitely [verify a trade this big] before you executed it," said one Comex floor broker.

However, the trade is unlikely to have been a keystroke error as silver also saw substantial selling at the same time and similar price falls.

This suggests that the seller wished to see gold and silver prices lower.  Some traders suggest that there may be High Frequency Trading (HFT) programmes that can see where stop loss orders are placed and sell in order to force stop loss selling – then buying back and thus making a quick profit. 

It will further fuel allegations that certain Wall Street banks, either alone or in conjunction with the Federal Reserve and US Treasury, are intervening in and manipulating prices in the precious metal markets.  

The Gold Anti Trust Action Committee (GATA) and other knowledgeable market participants have alleged that this is continuing to be done in order to maintain faith in the US dollar and the US capital markets.

(Bloomberg) -- Comex Suspended Gold Trading After Price Plunge, Dow Jones Says 
Comex halted trading in gold futures for about 10 seconds yesterday after prices plunged, Dow Jones reported, citing an unidentified spokesman for the exchange.

The so-called Stop Logic halt began at 8:31 a.m. in New York on June futures, the news agency said.

(Bloomberg) -- U.S. Mint Gold-Coin Sales Tumble to Lowest Since June 2008
The U.S. Mint sold 20,000 ounces of American Eagle gold coins in April, the lowest monthly total since June 2008, as signs of an improving U.S. economy boosted equities and eroded demand for the precious metal as a haven.

Sales plunged 68 percent from 62,500 ounces in March, according to figures on the Mint’s website. American Eagle silver-coin sales tumbled 40 percent to 1.52 million ounces in April, the lowest since February, the data show.

Investors preferred equities over gold as corporate earnings beat analyst forecasts and U.S. economic growth accelerated, according to Terry Hanlon, the president of Dillon Gage Metals. Bullion has gained 6.2 percent this year, while the Standard & Poor’s 500 Index of shares jumped 11 percent.

“People chose equities over gold and silver,” Hanlon said in a telephone interview. Addison, Texas-based Dillon Gage is one of 11 dealers authorized to purchase bullion coins directly from the mint.

Gold futures for June delivery fell 60 cents to settle $1,664.20 an ounce on the Comex in New York. Prices dropped 0.5 percent in April, capping a third straight monthly loss, the longest string of declines since March 2001.

The mint sold 15,000 ounces of gold coins in June 2008.

(Bloomberg) -- Jeremy Charles Will Retire as HSBC’s Head of Precious Metals
Jeremy Charles is retiring as global head of precious metals at HSBC Holdings Plc after almost four decades in the business that took him from “tea boy” to chairman of the London Bullion Market Association.

He will leave his position in London at the end of June, Charles, 56, said yesterday. David Rose at the bank’s London office and Paul Voller in New York, both with more than 25 years of experience in the industry, will take over responsibility for HSBC’s precious metals business, he said.

Charles began his career in gold as the “tea boy” at N.M. Rothschild & Sons Ltd. in London in 1975. He moved to Johnson Matthey Bankers in 1978 and stayed with it after it was taken over by the Bank of England in 1983 before being sold to Westpac Banking Corp. in 1984, Republic National Bank in 1992 and then HSBC in 1999. He witnessed the longest-ever gold “fixing,” when banks set a daily benchmark price, and worked during the Brink’s-Mat Heathrow airport gold robbery in 1983.

“I didn’t want to be one of those people who carried on just for the sake of carrying on,” Charles said yesterday in an interview. “The new challenges are for our talented younger people to carry on through. The Asian markets in particular are liberalizing, which in turn is creating new and exciting potential for growth and development.”

Bullion for immediate delivery surged almost 12-fold since 1975 to $1,663.50 an ounce today. It reached a record $1,921.15 in September as it climbed for an 11th consecutive year. The longest bull run in at least nine decades has seen investors accumulate more metal in exchange-traded products than the holdings of all but four central banks. Banks are buying more gold to diversify currency reserves.

LBMA Chairman

There are 27 people globally directly reporting to Charles, with a total of about 70 including those supporting the global precious metals business, he said. His “proudest” career achievement was as LBMA chairman from 2006 to 2009, he said. He will resign from his post as director of gold, silver and platinum fixings on retirement.

Charles took part in his first fixing while working for Johnson Matthey, witnessing a then-record price of $850 an ounce and the longest fix which took more than two hours in the early 1990s, when a military contract that was paid for using gold depressed prices, he said. Fixings are conducted twice a day and orders can be revised throughout the process as the price is moved higher and lower until participants are satisfied. Some mining companies use the fix to price their sales.

Charles was also trading gold during the infamous Brink’s- Mat gold robbery in 1983. An armed gang raided a Heathrow warehouse operated by the security company and escaped with about 26 million pounds ($42.2 million) in bullion, diamonds and travellers checks.

Gold ETP Development

Charles was one of four people who were “instrumental” in the development of the first gold-backed ETP and “that idea changed the world of gold forever,” he said. Interest soared in the decade since the products were introduced, with ETP holdings at 2,385.6 metric tons yesterday, about 1 percent below the March 13 record, data compiled by Bloomberg show.

The gold now held in ETPs is valued at $127.6 billion, according to data compiled by Bloomberg. HSBC Bank USA N.A. is the custodian for the SPDR Gold Trust, the biggest gold ETP, storing the gold in its London vault. There were 1,278.32 tons in the trust yesterday.

Gold has dropped the past three months and investor holdings in gold ETPs declined in March and April.

“I do believe, however, that we’ll be talking about record prices again before too long,” Charles said. “Central banks are once again a force in the market. When this is combined with private and institutional investment and access to markets globally through over-the-counter, futures and ETP products, then it’s easy to believe that any dip in the price of gold will be relatively short lived. The rally isn’t over yet, in my opinion.”

Charles, who has two adult children, said he intends to travel with his wife after retiring. “I’m going to try my hand at doing something artistic for the first time in my life.”

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Gold May Climb for Sixth Day, Heading for Best Run Since August - Business Week

Gold hits 2-week high as US data weighs on dollar - Reuters

Krugman Says Fed ‘Reckless’ to Allow High Jobless Rate - Bloomberg

A ‘Gold’ Finger Behind Bullion’s Morning Tumble? – Wall Street Journal

Critical Factors That Will Impact Silver – Financial Sense

Today's $1.24 Billion Targeted Gold Slam Down Makes The Mainstream Press – Zero Hedge

Russia Today's 'Capital Account' interviews GATA's Bill Murphy – You Tube

U.S. Debt Culture and the Dollar's Fate – National Interest

Bloomberg TV: Paul V Krugman - Bloomberg