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LAWRIE WILLIAMS: Another flash crash in gold - engineered or fat finger? Quick recovery

56 tonnes of paper gold sold in one minute in the markets at precisely 9 am London time. My colleague Ross Norman puts it down as most likely due to  – as he puts it – as bearing “the hallmarks of a fat finger 'muppet' - a trade of 18,149 ounces would be a very typical trade, but a trade of 18,149 lots of a futures contract (which is 100 times bigger) would not be... it leaves us wondering if a junior had got confused between ‘ounces’ and ‘lots’. 

Personally I take a more cynical view as this being very much an engineered trade designed precisely to knock the gold price, and other precious metals, down sharply just as they seemed set to take off on an upwards path again.  This seems to happen too often with gold, it has happened before – again just when the yellow metal seemed to have shrugged off adverse news and events and shown some strength regardless.  If this is the case, the volume of presumably fictional paper gold on this occasion would have seemed sufficient to drive the metal price down towards some kind of death spiral.  In the event it knocked the price back around $20 only before the price began to recover again. 

By today, the gold price had recovered in overnight trade - presumably led by Shanghai  - back to the $1,250 level so it looks like any engineered crash has failed in the attempt to make a long-term dent in the gold price.  That has to be gold positive in the days and months ahead.  Gold has survived the latest Fed rate increase and more hawkish statements as well as what looks to be a huge attempt at manipulation by a massive paper gold sale, almost unscathed.

Silver has recently been behind in its attempts to match gold’s increases– and is altogether more vulnerable given the relatively small size of the market compared with gold.  The gold:silver ratio is sitting stubbornly a little above 75 which is seen as a buying level as the writer remains convinced that the ratio will reduce to 70 or below – the target for the year is 65.

27 Jun 2017

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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