GOLD NEWS

Profit taking, fat finger or take-down? – gold crashes again

Big 24 tonne gold futures sales designed to put the frighteners on gold investment but may just be providing opportunities for those with a more long term outlook.

Author: Lawrence Williams
Posted: Wednesday , 28 Nov 2012

LONDON (Mineweb) - 

Reports of a massive 24 tonne sale of gold futures at precisely 8.20 am New York Time this morning just ahead of market opening there, saw a drifting gold price fall off a cliff with a $26 drop in a couple of minutes and a further downwards slip thereafter.  If profit taking, offloading that kind of quantity of gold at one shot seems a strange way of doing so – or inept as Ross Norman of Sharps Pixley puts it.  The fat finger possibility (keyboard error), which has been used to explain similar falls in the past when gold looks to be beginning to regain its lustre, seems, as ever, unlikely and we are left with the intentional take-down of the gold price by persons or institutions unknown as seemingly the most likely answer to what has happened.

We have seen this happen in silver and in gold from time to time – talk about ammunition for those who suggest the gold price is being suppressed or manipulated by Central Banks and allied bullion banks.  There seems to be little other logical explanation for this kind of activity.  It could even turn long term suppression-deniers into GATA adherents – and believe me, if you do start trending towards this viewpoint, the few and far between GATA–organised conferences are much more fun and interesting than the mainstream gold ones, even if some of the views expressed by audience members (and the odd speaker) may stretch credulity in the other direction.

Mineweb gold price chart for today showing precipitous gold price fall at 8.20 am NY time

Ross Norman did, though. Come up with another perhaps more charitable answer to whodunit: "More likely this could be a short play, with the seller looking to trigger stops below the market at $1730 and thus extend the move significantly lower and thus increase his profits. If so, he certainly caught the market on the hop as the move is counter-intuitive with everything else that is going on in the economy." says Norman  But the question remains as to who the seller is who can take the risk in selling this volume of admittedly paper gold.  Someone with exceedingly deep pockets.

So what to make of the ‘take-down’ if indeed it was such?  Is it a warning shot across the bows or an indication of more to come?  It is probably both.  It won’t necessarily stop gold’s continuing rise, just put a temporary dent in it and slow it down.  There will be those who will see it as a great buying opportunity – among which will probably be our Central and East Asian brethren with long term anecdotal evidence that China, in particular, buys up gold on any dips thus sharply limiting the downside risk.

Interestingly, GATA board member Ed Steer in his daily newsletter today predicted such an ‘engineered sellout’ as likely within the next couple of weeks.  Silver is, of course, more vulnerable than gold to such an attack as we saw last year, but the silver bears will probably be happy with an attack on gold for the moment, given that silver has followed gold sharply downwards – and exceeded its fall in percentage terms.  Likely the attacker will be short in silver too!

Virtually all the factors which have led to gold’s rise over the past decade are still in place – indeed are probably more serious now than in the past.  The global economy remains in a mess with sovereign debt continuing to accumulate, while gold production remains flat and there is little likelihood of any kind of major increase developing, even with the higher gold prices now prevailing.  Central Banks have turned into net gold buyers from sellers and demand in China, India and other Asian countries in particularly, remains at a historically high level.  You probably shouldn’t  let the manipulators, whether government-backed or not, put the frighteners on you but see such short term price falls as an opportunity to buy rather than as a reason to get out of gold.

iPad Version: Picture - Gold bars are pictured at the Ginza Tanaka store during a photo opportunity in Tokyo: REUTERS/Yuriko Nakao