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LAWRIE WILLIAMS: Dollar and equities down, gold up: Is another flash crash coming?

The last time gold was at current levels it was rapidly brought down a peg by a huge paper gold sale - 56 tonnes in a minute!  Some observers put this down to a mistake by a fat finger trader who mistakenly may have sold 18,149 lots instead of 18,149 ounces, but cynics, of which the writer is one, put a rather more sinister interpretation on the event as being a bullion-bank financed move to drive the gold price downwards. (See: Another flash crash in gold - engineered or fat finger? Quick recovery).   

If this was indeed the case it was only a limited success putting an initial $20-25 dent in the gold price, but it did succeed in putting a stop to any upwards momentum for a couple of weeks or so.  But the gold price has since been pretty resilient, helped by a decline in the dollar index to below 94, despite some dovish forecasts by the ECB and U.S. Fed on inflation prospects and some big sales out of the biggest U.S. gold ETF (GLD) – some 38.7 tonnes have been sold out of GLD so far this month after some decent purchases into it in H1.  Equity valuations may also have turned down – Japanese and European markets were all down today, and ever increasing fears of a stock market crash may be returning investors to the safe have attractions of gold yet again, although the GLD sales may suggest the opposite. 

But does this suggest there may be another effort to bring the gold price down to earth yet again?  If not gold could be set to continue rising – it has certainly picked up some momentum – and the favoured short term target of $1,300 could be in its sights yet again despite the GLD sales.  The dollar currently appears to be in a bear market and it is not being aided by the ever continuing trials and tribulations besetting the Donald Trump Presidency fuelled by a mostly-hostile media.  For some obscure reason the writer seems to be on several right wing Republican email lists and I have to say that the rather childish posts which seem to be disseminated on these probably don’t do the Trump cause much good!

While we don’t see another flash crash as imminent at the current gold price level, if further rises occur and momentum is seen to be building in precious metals prices we wouldn’t rule out another attempt to knock the price back at around the $1,275 level. 

Silver, after a torrid few weeks which saw it falling at a much higher percentage rate than gold, does seem to be beginning to make a move too.  At the time of writing the Gold:Silver ratio has come back below 76 (just) and we see this kind of level (above 75) as a prospective buy signal assuming gold’s upwards momentum continues.  If gold takes off, then silver should do even better, but it’s a very volatile market – not one for the proverbial widows and orphans.

And I can’t sign off without a comment on bitcoin, which is still riding high.  I can’t help equating the bitcoin phenomenon to a massive Ponzi scheme.  It only goes up if people carry on buying.  If people stop buying it will come crashing down.  To my mind an asset created out of thin air, as bitcoin has been, will ultimately come down to whence it came.  It’s only a matter of time!  But that time could be days, months or years – who knows?

24 Jul 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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