Shark Week Returns for Gold Traders

It seems as though the week of Thanksgiving can also be called “Shark Week” in regard to gold traders. This is not the first Thanksgiving week in which we have seen a dynamic move in gold pricing that does not pass the smell test. During the week of Thanksgiving a few years ago, specifically the Friday immediately following the holiday, a few traders took advantage of the light volume and the fact that many traders were absent during the holiday weekend to move gold prices dramatically lower.

There were more than a few instances over the last few years in which a single trader or a small group of traders shook the gold market to its core. They did so by placing large orders into the market which then moved the price of gold dramatically.

It seems this trend has accelerated recently. Most will remember the fat finger trade which occurred on June 26 of this year. This trade ended up resulting in an $18 drop in gold pricing in just a few minutes.

As reported by Tyler Durden, “One minute after 4am EDT, as the European market was warming up for trading, gold suddenly plunged $18, or as much as 1.6%, to $1,236 an ounce before bouncing, on a massive surge in volume with over 18k contracts, or just over $2 billion notional, trading in a second. A total of 18,149 lots were traded on Comex in just a minute, before falling back to 2,334 lots an hour later.”

The following day, Bloomberg Business Week wrote about the event in “Gold Jump Sees Talk of Fat Finger’s Return.” The article spoke about the purchase of 815,000 ounces after a 1.8-million-ounce sale the day before. “A second sharp jolt in gold prices in two days drew speculation someone seeking to reverse an erroneous trade on Monday again managed to unsettle the market.”

Then on August 25, a single trade of two million ounces caused the market to explode to $1297, before falling to $1284 and then trading back to $1298.

While today’s dramatic $20 decline does not seem to be the result of a “fat finger” trade, it does seem to fall in line with an individual, or small group of traders taking advantage of light volume during a holiday week as their timeline to place a sizable order in which to move the market.

As reported in MarketWatch, Mark O’Byrne, research director, at GoldCore said “Gold futures worth almost $2 billion, some 15,000 contracts, were dumped on the market in less than two minutes. The sharp decline is not warranted and suggests one or two market participants wanted the price lower today. Such selloffs have frequently been seen in recent months and tend to be short-lived and smart money will again buy this dip.”

Although today’s $20 decline has yet to be explained in its entirety, we can explicitly say that this move was not all fundamentally based. It suggests merely another instance in which a small group of traders is having a dramatic effect on gold pricing

Wishing you as always, good trading,