LAWRIE WILLIAMS: Gold ends week below $1,200. Flash crash stifles gains.
Precious metals were all surging on Friday with a weaker dollar helping them move upwards, but were brought back down to earth again by yet another flash crash. These seem to happen just whenever momentum in the precious metals prices seems to be being regained. We don’t think this is coincidence.
According to the Zero Hedge website some US$1.2 billion worth of notional gold futures hit the market over 1 minute, precipitating a huge fall in the gold price down from comfortably above $1,200 to near $1,190, and the other precious metals followed suit with similar sharp falls. Zero Hedge went on to elaborate that “In the minute ended at 0845ET, more than 10,000 December gold futures contracts, each representing 100 ounces, changed hands on the Comex in New York. That amounts to approximately $1.2 billion notional of the precious metal. That was about 30 times the 100-day average for that time of day.”
The website, which has a propensity for unearthing news of this type and other financial shenanigans, also quoted Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York, as commenting that “Someone had a lot to sell and wasn’t clever about it”.Somehow we don’t think any trading entity would be so naive to place such a trade without the realisation that it would have that kind of effect on the market. Perhaps the surprise here is that given the amount and rapidity of the trade gold did not fall further.
Precious metals prices did recover with gold soon trading back above $1,200 again, but the damage had been done. With the dollar regaining a little strength and next week’s Fed meeting, where interest rates are expected to be raised, drawing closer, gold drifted down a little to end the week just below $1,200 yet again – which may have been the whole purpose all along.
Once next week’s FOMC meeting is behind us, and given there are no ultra-hawkish statements in Fed chair Jerome Powell’s summation we would expect the gold price to consolidate back above $1,200, but how it might perform from there remains uncertain. By all accounts central bank buying is on the up and demand at No.1 consumer, China, appears to be holding up well and even rising. (See Gold: Russia adds another million and Chinese gold demand on the rise). With the Trump trade policies and sanctions alienating friend and foe alike any moves to reduce the status of the dollar in international trade and its position as the global reserve currency may already be seeing a pick-up in central bank gold buying, albeit small at the moment. For example the World Gold Council reports that H1 2018 saw the highest total of gold buying by central banks for three years, although it is still well below the buying during the first halves of 2012 to 2015.
Jim Rickards is predicting a concerted move by the global financial elite to replace the US dollar with the SDR as the global reserve currency of choice sooner rather than later. Should this come about then the advantages which have accrued to the dollar as the global reserve currency would fall away which would hinder the opportunities for the U.S. to continue its massive debt accumulation and perhaps plunge the dollar into a huge decline, with a consequent very positive impact on the gold price (in dollars at least). Rickards likes to talk $10,000 gold which we see as unlikely, at least in the foreseeable future. But he is not alone in his assessments. He has been right on some unlikely predictions before – but not always . However there are plenty of other commentators out there, with good track records, who see this premise as highly unlikely. I guess we will see what transpires in due course!
22 Sep 2018