LAWRIE WILLIAMS: Gold heads back up despite Friday’s take-down and stronger dollar
Gold this morning was heading back towards $1,280 again in Europe despite Friday’s massive sale on the U.S. futures market and the dollar index climbing back up over 94.5. It also seems to be shrugging off what is seen as the near certainty that the U.S. Federal Reserve will instigate another 25 basis point rise in interest rates at the December FOMC meeting. However it should be noted that the recent price pattern for gold has seen the price rise in Asian and European trade, but then brought down a few notches on COMEX in the U.S., although so far today it has made some progress.
This morning’s rise should give gold bulls a degree of comfort as it indicates some positive momentum for the yellow metal, particularly given the rise in the dollar index and suggests that gold has taken that initial $4 billion sale into the futures market on Friday in its stride. But as we wrote over the weekend these massive flash crash sales, which seem to occur every time the metal price appears to be gaining momentum, appear to have a specific purpose behind them.
Some observers have passed off Friday’s paper gold ‘sale’ as profit taking, but it does strike us that the dumping of so much in such a short time smacks of a more sinister course of action. (See: Europe pushes gold higher- USA slams it down – yet again!). We don’t think traders looking to take profits would release so much gold onto the market is such a short space of time. Like the other flash crash sales it looks designed to force the price down sufficiently to trigger stop-loss HFT liquidations which could see the start of a downwards spiral. The fact that it did not succeed in so doing is what might be considered a positive for those who reckon gold is still in a bull market.
After starting the calendar year at a little over 103, the dollar index slipped back to slightly above 91 in early August, but since then has largely been back in a rising trajectory and, at the time of writing was sitting at 94.5 – still down 8% on the year, but around 3.5% above its August nadir. Gold is doing marginally better year to date than the dollar fall being up 10.5%.