I was just settling in to write an article on the increase in Chian’s gold
reserves when at 9:30am the gold price got smashed. Initial news reports
seemed to put the blame on the Chinese market, with statements such as “bullion fell to as low as $1,088.05 an ounce …
shortly after the Shanghai Gold Exchange opened trading” and “According to ANZ, the sudden collapse in gold
prices earlier in Asia was due to 5 tonnes of bullion being dumped on the
Chinese market” but it started on Comex.
Nanex tweeted this picture which shows the first 4 seconds
of the drop in the Comex August futures contract (GCQ2015). Note that it
starts just after 9:29am Perth time.
Below is a 1 second time interval chart of the August futures contract
from Reuters. The area in the red circle is the 4 seconds of the Nanex chart
above, which puts the move into context.
The two green stars are 20 second trading halts. After the first halt the
price opened up (the diagonal line) but then got smashed again after
which another halt was imposed. This halt seems to have given people time to
get their head around the drop and then step in for some bargain hunting and
the price recovered above $1105.
Note that all this happened in the space of 1 minute and a lot of the
detail that one sees on a Reuters tick-by-tick feed is lost by most traders
using lower resolution charting/trading systems. The chart below comes from
the CME website and you can see how it just shows the move as one bar.
Note that the volume traded in this one minute was 716,000 contracts,
which at 100 ounces a contract is about 22 tonnes. ANZ reported that “half an hour after the market opened
we saw 5 tonnes of gold sold through the Shanghai gold exchange, which is way
above normal levels.” Reuters report that “more than 1 million lots were traded on
a key contract on the Shanghai Gold Exchange”, which is equal to 10
tonnes.
The chart below shows 1 second intervals for the SGE and spot (over the
counter) markets.
You can see that traders on the SGE reacted after the
Comex price move and bullion banks did not update their spot quotes until
9:30 and a half minutes, 1.5 minutes after the initial Comex drop. This delay
would be due to the fact that a bank is committed to deal on its bids and
offers on an exchange whereas Reuters over the counter spot quotes are
not actionable like an exchange (see here) so they are going to update the exchange quotes
first.
Reuters’ article provided the following quote/”explanations”:
- “It looks like someone was taking advantage of the low
liquidity environment at the moment. It’s a bit of speculative selling
going on,” said Thianpiriya [ANZ analyst]
- There were stop-loss orders around the $1,131 an ounce
level, said a Sydney-based trader, reflected in a spike in volumes on
Comex futures.
- “I just feel there’s a big push to get gold below $1,100
and then we bounced very quickly,” said a trader in Hong Kong.
While gold subsequently recovered to USD 1115, it is still down $15 from
Friday, so objective achieved, we assume. With record short positions and
continued it doesn’t look like we have bottomed yet and are still waiting for
the uptrend
signal.
