Gold Crush Started With 400 Ton Friday Forced Sale On COMEX (Fundamentals have not changed)

Zero Hedge ^ | 04/15/2013 | Tyler Durden

[SeekAndFind]

On The Forced Sale...

Via Ross Norman of Sharps Pixley,

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand.

Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".

Futures trading is performed on a margined basis - that is to say you have to stump up about 5% of the actual cost of the gold itself making futures trades a highly geared 'opportunity' of about 20:1 - easy profit and also loss ! Futures trading is not a product for widows and orphans. The CME's 10% reduction in the required gold margins in November 2012 from $9133/contract to just $7425/contract made the market more accessible to those wishing both to go long or as it transpired, to go short. Soon after we saw the first serious assault to the downside in Dec 2012, followed by further bouts in January 2013 - modest in size compared to the recent shorting but effective - it laid the ground for what was to follow. One fund in particular, based in Stamford Connecticut, was identified as the previous shorter of gold and has a history of being caught on the wrong side of the law on a few occasions. As baddies go - they fit the bill nicely.

The value of the 400 tonnes of gold sold is approximately $20 billion but because it is margined, this short bet would require them to stump up just $1b. The rationale for the trade was clear - excessively bullish forecasts by many banks in Q4 seemed unsupported by follow through buying. The modest short selling in Jan 2013 had prompted little response from the longs - raising questions about their real commitment. By forcing the market lower the Fund sought to prompt a cascade or avalanche of additional selling, proving the lie ; predictably some newswires were premature in announcing the death of the gold bull run doing, in effect, the dirty work of the shorters in driving the market lower still.

This now leaves the gold market in an interesting conundrum - the shorter is now nursing a large gold position and, like the longs also exposed - that is to say the market is polarised between longs and shorts and they cannot both be right. Either the gold bulls - like in a game of tug-of-war - pull back and prompt the shorters to panic and buy back - or they do nothing, in which case the endless stories about the "end of gold" will see a steady further erosion in prices. At the end of the day it is a question of who has got the biggest guns - the shorts have made their play - let's see if there is any response from the longs to defend their position. 

 

On Inventories...

Via Mark O'Byrne of Goldcore,

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.

[Jack Hydrazine]

Gold and Silver Crash - Don’t Be An Idiot
http://market-ticker.org/akcs-www?post=219805

Don’t do it folks.

There’s no “reflation” trade. Nor is this “manipulation.”

There is one thing to watch, and that is if the physical commodity at real, no-BS volume sources de-couples from the futures price. This is a nightmare scenario as it posits the imminent destruction of the capital market structure, since futures are allegedly deliverables.

That is, if I own a gold mine and know I can dig gold out of the ground for $1,200 an ounce “all-in” I will short whatever I’m sure I can deliver over the next year or two into the market so long as the price is over that amount, as it guarantees my profit.

I’m not interested as a miner in speculating on the price. I make my money digging the stuff out of the ground — doing real work and getting paid in real money. I am singularly uninterested in the speculative fervor or the “gold bug hard money” mania; it means nothing to me at all.

If this relationship changes then — and only then — do you get panicky. But then you get panicky about everything, because as soon as you lose the fungible nature of financial products with their underlying assets the market is telling you that the electronic representation of all such assets are about to be marked down dramatically and quite possibly to zero.

The reason is simple — that fungible nature of cash and financial price means that as soon as one moves there is money to be made by arbitraging the two. If the price of “cash” gold is higher than that of “futures market” gold you can buy the cash hold and short the futures, locking in a guaranteed profit because you can deliver the actual gold. Likewise, if the other happens you buy the futures and immediately notice to take delivery, and you have acquired the gold at a below-market price. So long as this relationship holds all claims of “market failure” or any sort of conspiracy nonsense are crap.

Today, here and now, despite all the screaming from various people who are trying to fend off the margin clerk such claims are unsupported as there is no such spread of material consequence and thus are utter crap.

Instead, what you’re being told today (and have been for a while, if you have been watching the charts, particularly for copper) is that central bank “money printing” doesn’t work.

That is, all it that “QE”ing and “printing” has done is inflate financial asset prices in the expectation of actual economic growth. But now, five years into this garbage, we are seeing that exactly as I predicted it has factually done nothing for the broader economy, such as the jobs market, which means that the central banks have done is blown another bubble!

You just heard a “pop.”

Ignore it at your own peril.

[rbg81]

If I was conspiratorial about this, I would say someone is attempting to manipulate the market lower so they can buy up more Gold cheaply. I think with all the QE going on by the Fed, that gold should be going up.

[silverleaf]

still dropping, down $40 just in past hour to $1366

decisions decisions (when to buy)

[norwaypinesavage]

"Futures trading is not a product for widows and orphans."

That says it all. It's not for me, either.

[E. Pluribus Unum]

You just heard a “pop.” Ignore it at your own peril.

So the solution is physical gold/silver?

[Jack Hydrazine]

I imagine it probably has always been that way.

[silverleaf]

real conspiracy fans see this as a predicted event coming to pass, and the precursor to an imminent larger event

[DannyTN]

Good thing nobody was stupid enough to tie our currency to gold.

[Therapsid]

big town in minnesota not one ounce gold avail...!

silvers going for $36...about gone.

[Youngman542012]

I think its an predetermined event before an even larger event...this is the final nail in the coffin I think....something is up...

[SeekAndFind]

RE: Good thing nobody was stupid enough to tie our currency to gold.

Gold is a monetary metal whose price is determined by inflation, by fluctuations in the dollar and global equities, by currency-related crises, interest rate volatility and international tensions, and by increases or decreases in the prices of other commodities.

The price of gold reacts to supply and demand changes and can be influenced by consumer spending and overall levels of affluence.

We are experiencing one of the worst recessions ever, caused by a financial disaster a scale of which has been unprecedented, and which effected practically every economy in the world. In order to avoid a total monetary collapse which began this time three years ago, central banks around the world were compelled to provide monetary assistance. They provided bail out packages to some of the largest financial institutions as well as various stimulus packages in order to kick start their economies.

However, it appears that the economic stimulus has been a dismal failure, only stimulating government interference in the economy, while piling up massive debt. Most western countries still suffer from low GDP growth as well as high unemployment.

So, getting back to “stupid enough to tie our currency to gold.”....

One of the major driving forces behind the Gold bull market has been the declining value of the US dollar.

Gold is bought and sold in U.S. dollars, so any decline in the value of the dollar causes the price of gold to rise. The U.S. dollar is the world’s reserve currency - the primary medium for international transactions, the currency in which the worth of commodities are calculated, and the currency primarily held as reserves by the world’s central banks.

However, now that it has been stripped of its gold backing, the dollar is nothing more than a fancy piece of paper. The dollar has been in an overall downtrend since 2001, and this longer-term down trending pattern seems well established and likely to continue.

The Dollar Index which is a widely used index that measures the US dollar relative to a basket of foreign currencies has already dropped more than 30% since 2001 while gold has risen more than 400%.. (The currencies in the Index include the Euro, Yen, Sterling, Canadian Dollar, Swedish Kroner and Swiss Franc).

LONG TERM -— Gold has maintained its value in terms of real purchasing power in the long run and is thus particularly suited to form part of central banks’ reserves. In contrast, paper currencies always lose value in the long run and often in the short term as well.

The fundamentalist argues that in the short-term, gold is falling for 2 reasons:

1. The US$ is strengthening story (presumably relative to yen as it forms a component of the US$ index).

2. Stock markets go overdrive into risk-on mode, rallying on Bernanke’s confirmation on Tuesday, 26 Feb 2013 that despite committee members differing in opinions on QE, he makes the call, easy money flow is on tap till he turns it off.

In terms of fundamentals, I don’t see anything changing at all.

Obama is still President, Our debt is still going UP tremendously, Bernanke is still printing money to buy our debt, and I don’t see anything in the budget battles reversing that trend.

[wrench]

Extraction cost is about 1275 on average today. Anywhere close to that figure and you are “golden”.

In 2000 it was possible to buy gold below extraction price for several weeks.

[rbmillerjr]

Ignore at your own peril.

If you wait too long, a natural panic will set in.

[DannyTN]

Don’t forget speculation on gold price. That’s a big one.

That fancy piece of paper had less year to year fluctuation than did the dollar back by gold. Good job FED!

A central bank can control to an extent the amount of inflation or deflation a currency has. They err on the side of inflation because deflation causes depressions. So yes paper money does lose a small amount of value each year, but by intentional design. It’s better for business transactions than gold which is subject to wild speculative swings.

It’s entirely possible to devalue a currency based on gold.

It’s also entirely possible for congress to continue overspending with a currency based on gold. They’ll just promise your kids will repay the lenders in gold. Which would probably set your kids up on the wrong end of the biggest short squeeze of all time, when that bill comes due and there is not enough gold.

[DannyTN]

Don’t forget speculation on gold price. That’s a big one.

That fancy piece of paper had less year to year fluctuation than did the dollar back by gold. Good job FED!

A central bank can control to an extent the amount of inflation or deflation a currency has. They err on the side of inflation because deflation causes depressions. So yes paper money does lose a small amount of value each year, but by intentional design. It’s better for business transactions than gold which is subject to wild speculative swings.

It’s entirely possible to devalue a currency based on gold.

It’s also entirely possible for congress to continue overspending with a currency based on gold. They’ll just promise your kids will repay the lenders in gold. Which would probably set your kids up on the wrong end of the biggest short squeeze of all time, when that bill comes due and there is not enough gold.

[The Working Man]

I’m not in the gold market, so with that out front here’s my question.

Is this possibly the way that certain people who have been saying for some time that there is not enough “physical” gold to cover all of the Gold certificates and the demand to repatriate gold back to various countries, ie. Germany, China etc. to force things to a head?

If so, then what are the effects of there not being enough physical gold to cover all of these demands?

[DannyTN]

[nomad]

Dude, I am a part time college student but I also drive a truck so come on, English please?

[silverleaf]

http://www.canadafreepress.com/index.php/article/52005

from last December

see last paragraph

tinfoil hat stuff but interesting reading