Who is trying to weigh the yellow metal down? Do you know the answer?

gold price analysis

Do we have a new hero in the making, say the Yellowman? Just like Batman, works in the dark, at the most unassuming hours and does a whole lot of stuff to which the world wakes up.

So this Yellowman was instrumental in bringing about a flash crash that took the precious metal down by almost 4% (about USD 50) within seconds on 19th July 2015, which was one unassuming Sunday for most of the world. As a result, Gold plummeted to lowest levels since March 2010.

China’s market had just opened for trading, around 9:30 pm ET,  this Yellowman dumped five tonnes (USD 2.7 bn) of Gold on China, the same China that dumps anything from plastic to planes on the global markets. Analysts say that during a single day, a normal trading session witnesses just around USD 0.5 tonnes of Gold trade.

Such an overwhelming experience that Gold turned red and fell to a five-year-low to USD 1,088.05/ounce. Further, it got other metals such as silver and platinum also down.

The Shanghai Story:  Gold and Silver went up the hill to get us under the water.  Gold fell down and broke its crown, and Silver came tumbling after. 

Who wants to play with Gold? 

We told you, it is our Yellowman. He was simply enjoying the show at the time of low liquidity. The Shanghai market saw trading of close to 5 tonnes of Gold within two minutes instead of the normal 25 tonnes/day. So, now we know that our Yellowman wants to go short on Gold. Interestingly, on Friday when Gold was at its then five-year-low, China released its updated Gold reserve data for the first time in six years.

World over, the yellow metal has an investment value attached to it. It has also been the grain for the rainy day for most. With worries about global recessionary trends receding a bit, gold prices have also come down.

GOLD FIVE YEAR PRICES

5 year gold price chart

Traders Astonished

Most traders are stunned that such amounts of gold were dumped during such an illiquid hour, clearly to take advantage — or in other words, to manipulate the market.

The selling triggered stop loss orders. A total of 60 seconds will have a deep impact on the bullion sentiments. Interestingly, CME circuit-breakers stopped the trading session following a USD 20 drop in the main gold contract, within four seconds.

Though trading resumed, in the following session, about 1500 lots exchanged hands within nine seconds, bringing the prices down to a five-year-low. It was time for a second circuit-breaker.

At 10:46 ET, spot gold was trading at USD 1096.4/ounce, down 0.5%. We are still not out of trouble it seems. And, most analysts are wondering that while the USA, London and Japan were closed, it could still be some big brother playing during its sleep.

Jeffrey Rhodes, the Dubai-based Gold industry veteran and Founder of Rhodes Precious Metals Consultancy ‘smelled rat’. In an interview on the Dubai Eye during Business Breakfast show today morning, he said that the flash sale done during the most illiquid time (Sunday) suggests that the trader wanted to have the maximum impact on price (downfall) – rather than trying to get the best price – pointing towards a price manipulation.

How far will the prices dip? 

Experts say that Gold will see some more tough times. A strong US dollar, looming interest rate rises and such flash crashes could pull the rates down to USD1000/ounce.

On 21st July speaking to Bloomberg TV Goldman Sachs’ Jeffrey Currie said he expects gold could eventually fall below $1,000 an ounce as the “worst is yet to come.” – reports Kitco.

On the same day, ABN Ambro in its weekly research reports that it also expects gold prices to fall to $1,000 an ounce by the end of the year and $800 an ounce by 2016.

Meanwhile, analysts at Barclays in their latest research report said that they will be watching $1,100 and $1,000 an ounce very closely over the coming weeks.

“If prices fall below that level and breach the $1,000 support target, early money ETPs become loss-making and may begin selling, placing further downward pressure on prices,” they said.

Is it a buying opportunity? 

Gold prices need to be watched out until the policy meeting of the Federal Reserve due in September. The Fed is expected to raise the interest rates from its current rates of 0.25 %, given the global scenario. To put things in the perspective, higher interest rates can have an impact of reducing the pressure on non-yielding commodities such as gold.

Photo credit-Dennis/Flickr

 

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