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Gold Gets “Whacked,” Down $25 Before You Can Finish Your Coffee
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(November 28, 2012) Gold prices have been nigh on boring over the past week, month, and longer, having been range-bound ($1540- $1900) since July of 2011. So it was quite the shock when Wednesday morning’s action in gold went from slightly negative to down $30 for the day, literally in the time it takes to listen to a pop song.
Why did gold sink so suddenly, especially on a morning of no ‘new news’ whatsoever? Although we will present some outside commentary here, the short answer is that a 24-tonne sell order hit the CME at 8:20 AM. Needless to say, when 24 tonnes of anything gets dropped rather suddenly, it can do a lot of damage.

From the CME Group Mid-session report:

“The gold market came under noted pressure in the wake of talk that the fiscal cliff could result in a US down grade and perhaps more importantly another global macro economic slowdown could unfold. One can hardly lay blame for the sharp slide in gold this morning on weak US data as data this morning was only marginally soft. Gold probably saw some additional pressure from technical stop loss selling, as the gold market fell through a series of key chart points this morning. News that a gold derivative instrument reached record holdings, should have underpinned gold this morning but apparently big picture macro economic issues were more important today than internal gold supply and demand fundamentals.”

Kico.com brought us this from Dave Meger, Vision Financial Market’s head of metals trading:

“At this point, we’re viewing the move lower as technical... ...Everybody expected some kind of risk-on trade or bounce in the euro on the back of the Greek deal yesterday,” he said. “When that did not materialize and the euro was not able to sustain above $1.30, it slowly faded and took the metals with it yesterday and it culminated in significant weakness today.”

An unnamed desk trader was quoted as saying “It was down $25 in a minute. Somebody came in and whacked it. Nobody knows (who) except the people who did it…It was some hedge-fund type that just hit it. They probably set off stops. I’m sure they weren’t the entire volume.”

Kitco further quoted Sean Lusk, a precious-metals analyst with Ironbeam:

“There is definitely some buying underneath the market. Right now, there is no panic with people saying ‘I need to buy the highs.’ Gold keeps coming (back) to them…Around those levels, I think you’re going to find buyers. The action I’ve seen over the last month or so is on these dips, there is strong buying. When the market looks worst is when people are buying. I don’t see any major change yet.”

Ross Norman of Sharps Pixley commented:

“Gold saw a massive 24 tonne sell order (7,800 contracts) at 08:20 a.m. New York time - bang on the opening of the world's largest gold exchange - which a fall of 2.25% in the market price.”

“If the selling was year-end profit-taking then it was inept. Dealers try and finesse big sell orders into the market to get the best (highest) price for the biggest volume they can and thereby optimize profit - that requires stealth. If on the other hand it was a "fat finger" episode as has been suggested with a broker said to be looking to roll his December gold futures contract then it was even more inept.”


So, you can take your pick as to what happened this morning: gold followed the euro down, or someone woke up this morning worried about the ‘fiscal cliff,’ or some entity either purposefully or ineptly sold 24 tonnes of gold all at one time. Or, wait another day or two, and the Internet will be full of conspiracy theories, one of which will probably be true.

Elsewhere, the US Mint announced today that it is out of tenth-ounce gold Eagles until the release in January of the 2013-dated coins. Also, sales of Eagles and most other gold bullion products have picked up sharply over the past two months, at first on the uncertainty surrounding the Presidential election, and then after the election, due to end of that uncertainty.

Pamp Suisse products are once again becoming available, as Pamp has moved its New York operation to a new higher and drier location, and is just now receiving its first shipments of precious metals products since superstorm Sandy struck. Pamp Suisse had for many years stored precious metals inventory at a sub-basement address in lower Manhattan, and Sandy proved, once again, that safes and vaults are not waterproof. We welcome the Pamp Suisse team back.

 

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