A Quick Recovery from Friday’s Four Million Ounce Trade

November 13, 2017 - 5:43pm

 by Gary Wagner

On Friday of last week at approximately 11:10 EDT, in a span of about 10 minutes, a single order of four million ounces of Comex gold rattled the market and resulted in a drop of approximately $10. Because there was no new fundamental event or release of economic data which would have been a causal effect for such a move, it was quickly believed that this rapid selloff was due to something out of the ordinary.

Immediately the news services, as well as individual analysts, began to hypothesize on what was the causal action of this event.

One of the first comments to hit the news services was from CNBC when they said that “it was not immediately clear what caused the drop.” Within minutes MarketWatch reported that “market participants also speculated about a sizable intraday sale that helped add to the selling pressure of the commodity.”

One analyst at Kitco described Friday’s price action as a “big sell order from a shorter-term orientated futures trader that caught the market off-guard.” While another newsletter editor commented by saying “that while the move appears to be dramatic to gold investors, the reality is that it is probably a small speculative play from a major fund.”

Another comment from a highly regarded analyst said “we didn’t see any headlines, any news to make gold drop $10, but it just did. I’m going with someone who has a huge position that can trigger stops and make the market move in the direction”.

The only real factual information that came out about Friday’s quickly pay selloff was from Bloomberg markets when they reported “after 11:10 AM on the co-mix in New York almost 40,000 contracts, which represent 100 ounces of the metal, traded in a span of 10 minutes. That triggered a selloff, sending prices down as much as 1%”.

Now that we have had the weekend to gain more information on Friday’s activity not much is surfaced. We know the how and the when this event happened, however, we still do not know who or what firm was responsible for this trade.

At the same time, the Comex exchange has regulations which clearly states position limits for speculators and institutional investors. The only participants who are not bound by these restrictions are approved and recognized professional hedgers working for large corporations which either produce or utilize a given commodity.

While many instantly cried wolf citing manipulation of the markets, at least for now the facts remain that if this was implemented by a single trader or a single firm, it cannot be construed as manipulation.

In other words, if the position size of 40,000 contracts is permissible within limits set forth by the Comex exchange a single trade cannot be considered market manipulation.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer