An Explanation Of Recent GOLD PRICE Move ...

·       
Monday bullion bankers reported purchases of 1.15m oz of Jan 13 Puts with strikes of 1710 to 1690. 

o   Delta must have been around 600,000 Oz

o   Market weakened $20/Oz

·         Yesterday somebody dumped around 700 to 800,000 outrights in 5 minutes.

o   Market dropped to $1706/oz.

o   Market subsequently recovered and is now back to $1724.

This looks to me like a scaredy-cat who needed to get out of a position - some say it is a US based fund that is in trouble, others a producer - for whatever reason. 

Accordingly he was prepared to pay a few dollars for a very short-term, out of the money Put .

He was now protected on the downside.

So his alternatives are:-

              1.      Wait and exercise Put

2.       Test the spot market and see if he can do better

Yesterday he found that the market was liquid enough that he could do $1 billion nearby outrights at a clip at prices better than his downside protected price so he did; and simultaneously sold his Put position, probably at a handsome profit.  The delta on the Puts had to be rebought but, in the glare of the publicity concerning the outright trades, derivative and associated delta is not so noticeable and thus has not been reported.

A very well executed programme in my view.

What is interesting, though is that the big outright delta on the original Put trade had very little effect on the price and shows how big the appetite of the market is for the nearby outright metal. 

Very bullish.