Massive $20 Billion Paper Gold Sell Orders Trigger Stop Loss Selling And Unfounded Panic
Today’s AM fix was USD 1,416.00, EUR 1,083.31 and GBP 924.52 per ounce.
Friday’s AM fix was USD 1,548.00, EUR 1,186.30 and GBP 1,008.60 per ounce.
Gold fell $72.90 or 4.67% on Friday to $1,488.10/oz and silver slid to $26.04 and finished -5.29%.
Gold and silver were both down for the week - 5.76% and 4.14% respectively.
There is blood running in the gold market this morning after vicious selling which began on Friday afternoon and continued in Asian trading and through into European trading. Gold has fallen another 4.4% today after a huge number of stop loss orders were triggered at $1,480/oz pushing gold lower.
Gold is now testing the next level of support at $1,400/oz. A close below $1,400/oz today could lead to further weakness and a test of the next level of support at $1,300/oz. Further weakness seems likely in the short term as the trend is most definitely down and the paper shorts firmly have the upper hand and are pressing their advantage.
The scale of the sell off is incredible and even some of the bears have been surprised by it and are questioning the catalysts for the $150 sell off since Friday. Sentiment has been poor for weeks and the unfounded rumour regarding Cyprus gold reserve sales led to further weakness last week.
However, the Cyprus rumour, the poor job’s number and concerns about a continuation of the Fed’s ultra loose monetary policies do not justify the scale of this sell off which is unprecedented.
Reports suggest that a futures sell order worth $6 billion, equal to 4 million ounces or 124.4 tonnes of gold, by a large investment bank sent prices plummeting and spooked the markets contributing to the decline. The order was believed to have been placed through Merrill Lynch's brokerage team.
The futures market then saw a further wave of selling of contracts worth some $15 billion, equivalent to 10 million ounces of selling or 300 tonnes, in just 35 minutes.
Investment banks and hedge fund speculators can manipulate the paper or futures gold price in whichever direction they want in the short term due to the massive 20 to 1 leverage they can utilise and that is what was clearly seen on Friday.
Gold futures with a value of over 400 tonnes were sold in hours and this is equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions.
It may again be the case that bullion banks with large concentrated short positions are manipulating the price lower as has long been alleged by the Gold Anti Trust Action Committee (GATA). The motive would be both to profit and also to allow them to close out their significant short positions at more advantageous prices and possibly even go long in anticipation of higher prices in the coming weeks.
Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories.
The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.
Comex gold bullion inventories have slumped 17% already in 2013, falling to just 286.6 metric tons of actual metal on April 11, the lowest since September 2009.
This means that futures speculators on Friday sold a significant amount of more paper gold, in an hour or two, then the entire COMEX physical gold bullion inventories.
Interestingly, the drop in Comex inventories would be the biggest for a whole year since 2001, when bullion began its secular bull market.
Absolutely nothing has changed regarding the fundamentals of the gold market and bullion owners are advised to again focus on the long term and the vital diversification benefits of owning gold over the long term.
Although some Federal Reserve policy makers said that they probably will end their $85 billion monthly U.S. bond purchases sometime in 2013. The key word is ‘probably’ and it remains unlikely that the Federal Reserve will stop their debt monetisation programmes any time in 2013 or even in 2014.
Even if the Fed did end them, ultra loose monetary policies and negative real interest rates are set to continue as are competitive currency devaluations and currency wars - two other fundamental pillars supporting the precious metal markets.
Buyers are now presented with another very attractive buying opportunity. We always caution against trying to “catch a falling knife” and buyers should hold off until we get a few days of higher closes or a weekly higher close. Alternatively, they should consider dollar, pound or euro cost averaging into a position at these levels.
Sellers should consider holding off as if contemplating selling they may have missed their opportunity and if they have to sell they may be best placed holding off until prices bounce or recover. Sellers are now disadvantaged both in terms of price but also in terms of premiums that have spread on some physical bars such as one kilo bars.
In the course of gold’s bull market, vicious sell offs like this have often presaged material weakness in stock markets and this may occur again.
Gold’s ‘plunge’ is now headline news which is bullish from a contrarian perspective. Less informed money is again selling gold or proclaiming the end of gold’s bull market.
The smart money such as certain hedge fund managers, high net worth individuals, pension funds, family offices, institutions and creditor nation central banks and will see this vicious sell off as an absolute gift and will accumulate again on this dip.
A long term allocation to physical gold bullion to hedge systemic and monetary risk remains vital.
Gold falls into bear market territory – Reuters
Gold, Silver In Asian Liquidation Mode As China Growth Slows More – Zero Hedge
Bullion bloodbath: 125-ton sell-order sets gold price for plunge – Emirates 24/7
Top gold timers react to bullion’s plunge – Market Watch
Gold Confidence Shaken – JS Mineset
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