Was There a Rhyme or Reason?

November 10, 2017 - 5:36pm

 by Gary Wagner

According to CNBC, “It was not immediately clear what caused the drop.”

This morning, in the span of 15 minutes, gold prices plunged from roughly $1284 an ounce to $1274. This sizable and quickly paced price drop occurred without any real shift in market sentiment or any new relevant fundamental event that could precipitate that occurrence.

While it was quite obvious that something or someone was making a rather large market play, the who and the why were simply not known. As the dust began to settle news started to emerge that it might, in fact, be a single trader executing a single trade that resulted in a dramatic price drop this morning.

MarketWatch reported that “market participants also speculated about a sizable intraday sale that helped add to selling pressure in the commodity.”

Jim Wyckoff, senior technical analyst at Kitco.com, described Friday’s price action as a “big sell order from a shorter-term oriented futures trader that caught the market off guard.”

Vince Lanci, editor for marketslant.com, said 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.

Market participants continued to speculate as to the underlying cause of today’s rapid selloff, looking to fill in the blanks for those “who” as well as the “why” this event occurred.

According to Bloomberg Markets, “After 11:10 a.m. on the Comex in New York almost 40,000 contracts, each representing 100 ounces of the metal, traded in a span of 10 minutes. That triggered a sell-off, sending prices down as much as 1 percent.”

While this explained the “what” happened, information as to who executed the trade and why remains a mystery.

In a telephone interview with Bloomberg, Miguel Perez-Santalla said, “We didn’t see any headlines, any news to make gold drop $10, but it just did. It’s going with someone who has a huge position that can trigger stops and make the market move in a direction.”

So was there a rhyme or reason for today’s price drop in gold? While the rhyme may be unknown the reason it seems is perfectly clear: because they could. Apparently, a trader with a large enough position to move the market was not only cognizant of that fact but utilized that market strength to make money.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer