While my call has been that we will hold near these levels and go higher, the price action did not make me anymore bullish. Whether the buyer was short covering or initiating I do not know; but the price action following the buying was disappointing. New buying did not come to the market, as the high was made in an abrupt fashion, and never did we see the day's high retested. In fact, we had trouble even getting back above 1580. Gold never did return to the 1566 level where the buying began, but the lack of follow through was a bit disappointing.
To put 13,000 contracts in context; we have only traded 111,000 contracts since the open last night. So over 10% of the days volume was traded in a 10-15 minute period which, as mentioned, did not hold any significance. So while the 18 dollar move low to high might seem like a lot, I do not find it to be particularly impressive. On major economic announcements, I have seen orders between six and seven thousand lots cause equal price movement in a matter of seconds. I must admit however, that those fast moves, have all been to the downside. Still, I think today's buying provides an interesting point of reference for understanding how gold trades... and how those other moves are almost certainly a sign of manipulation of price.
Whether short covering or initiating, this was either real purchasing of contracts, or manipulation by someone who had no clue what they were doing (hence the failure in pushing the price drastically). The big difference between this rally and the precipitous drops discussed in previous posts, is that this took place over time. The market was able to absorb 10+% of a day's volume when things were otherwise quiet BECAUSE the buying was spaced out over time. The precipitous drops have all taken place instantly. The 7,000 contracts or so that trade on the drops (I've seen it twice) all trade almost at once. For reference, 7,000 contracts at 1600 carry a total notional value of approximately 1.1 billion dollars. For that kind of notional value in a single trade, you might assume that someone has at least a faint clue as to what they are doing. Either that whale is blown away by the fact that you can do two times as many contracts and get better price levels, or the case for the fact that those sellers WANT to drive the price down becomes all the more strong.
For anyone who has paid close attention to those vast sell-offs I might expect to hear a counter-argument raised. Those sell-offs have come at the times of major economic news. One could argue that at the announcement of major economic news, a bullish or bearish thesis could change on a dime, and there would be panic to get out as quickly as possible.
Two comments to that argument.
A) You would still be better off to spread the order out over a 1 to 2 minute period
B) Pay attention to when the sell-off (or rally, were it to ever work that way) happens on the mini flash crashes. The sell-off happens before the news is actually out. So in essence, everyone is fooled into thinking the sell off is drastic BECAUSE OF the news that is released. Au Contraire. The moments before news is released is when everyone gets flat and pulls their orders. Hence, the easiest time to rip through a market with the least amount of size.
I have made these arguments before about the way the manipulators smash gold and why they do it when they do it. Today's example of big buying (2x the size) not moving the markets nearly as much (particularly when accounting for order size and relative daily volumes) only bolsters the argument that the flash sell offs are pure market manipulation.
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