Gold sold off in waterfall fashion after this report, but that was an obvious over-reaction, if it was a reaction to the news at all…
By Brien Lundin
Gold Newsletter, Metairie, Louisiana
Sometimes the gold market seems like a mixed martial arts fight. The metal is down on the canvas, seemingly helpless, yet it keeps getting pummeled unnecessarily.
That’s what we’ve seen since mid-February, as any attempt to climb well into the $1,300s was repeatedly cut short, with the price being driven back below $1,300 not once but three times — often for no other apparent reason save market manipulation.
Yes, there are some fundamental factors at play. Venezuela has been surreptitiously attempting to sell more of its gold reserves; a surge in U.S. stocks has captured the vast majority of money flows; and a lack of geopolitical or economic crises, or at least any concern in that regard, has stifled any safe-haven demand for gold.
But the ongoing price decline has been punctuated by repeated sharp selloffs. And each of these has been characterized by unceremonious dumping of thousands of Comex contracts at the open, in an obvious disregard for any profit motive.
In short, somebody somewhere is using the power of their purse, in concert with the indifference of the U.S. Commodity Futures Trading Commission, to violations of its trading rules, to manipulate the gold price lower.
As you are probably well aware, I’m skeptical that government actors can or would manipulate gold or silver on a daily basis. But there’s no denying that the structure of the paper gold and silver markets (as well as some other assets) are
such that well-financed traders can move them for their own purposes at will.
There have been a number of examples of these so-called “flash crashes” in gold over the years, most notably in April 2013, when as much as 140 tonnes of gold was quickly dumped onto the market to drive the price down hundreds of dollars. As my late friend Gene Arensberg noted at the time, it would take an astronomically improbable coincidence for so many different traders to independently decide to dump max-level contract positions at nearly the same instant.
The only answer is that there aren’t a number of independent traders acting Simultaneously — and that position limits are being ignored for a few specially favored traders acting in concert.
As I say, these flash crashes have come now and then over the years, but we’ve seen a flurry of them in recent weeks.
In late March, for example, there were two, in successive trading sessions that apparently were aimed at getting gold below the key strike price level of $1,300 before options expiry at month end.
Those were successful and seemed to only encourage more bear attacks on gold since all came at the New York opening. And with thousands of contracts representing billions in notional value being jettisoned at one time, the strategy was definitely not to maximize returns.
If there was any market-based rationale for the sales, it was flimsy or rehashed.
Case in point: On April 11 Reuters reported that Venezuelan officials were able to sneak eight tonnes of the nation’s gold reserves out of the central bank’s vaults,
with all of it destined to be sold for hard cash to keep the kleptocratic Maduro in power for a few more weeks.
Gold sold off in waterfall fashion after this report — but that was an obvious over-reaction, if it was a reaction to the news at all.
And then, only two trading days later, Bloomberg essentially repeated the story, quoting two anonymous sources and putting a dollar value of $400 million on the gold sold. This was essentially the same news that Reuters had broken only days before, rehashed and tied up in a new bow by Bloomberg, and with no mention that Reuters had already provided the scoop.
That reprint prompted yet another selloff in gold. As I tweeted at the time: “Thank you, Bloomberg, for repeating last week’s Reuters story as if it’s news. They didn’t need an excuse to dump gold this morning, but this was still awfully convenient.”
And dump gold they did. As ZeroHedge reported, “Precious metals traders are using the ‘F’word a lot this morning — ‘Fiduciary’ — as they question the rationale for ‘someone’ deciding to puke over 11,000 gold futures contracts (around $1.5 billion notional) into the market, sending the price tumbling to its lowest since January. …”
So why the flurry of bear attacks on gold recently? Are they doing it as part of some master plan directed by official actors, in reaction to the ongoing attempts by Russia and China to insulate themselves from the dollar’s hegemony?
Or are they private actors, manipulating gold simply because they can do it and get away with it, banking huge profits in the process?
I don’t know, and I tend to doubt that anyone will ever know for sure. Probably it’s a bit of both.
Brien Lundin is editor of Gold Newsletter.
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