Thursday, September 12, 2013

Shanghai Slam Breaks Gold Market

I haven't posted for a while because I've been working on progress towards making the first Gold Bullion Debit Card a reality. If you're interested in learning more you can check out the beta website being developed at

Now to Shanghai. From ZeroHedge:

There was a time when, if selling a sizable amount of a security, one tried to get the best execution price and not alert the buyers comprising the bid stack that there is
(substantial) volume for sale. Of course, there was and always has been a time when one tried to manipulate prices by slamming the bid until it was fully taken out, usually just before close of trading, an illegal practice known as "banging the close." It appears that when it comes to gold, the former is long gone history, and the latter is perfectly legal. As the two charts below from Nanex demonstrate, overnight just before 3 am Eastern, a block of just 2000 GC gold futures contracts slammed the price of gold, on no news as usual, sending it lower by $10/oz. However, that is not new: such slamdowns happen every day in the gold market, and the CFTC constantly turns a blind eye. What was different about last night's slam however, is that this time whoever was doing the forced, manipulation selling, just happened to also break the market. Indeed: following the hit, the entire gold market was NASDARKed for 20 seconds after a circuit breaker halted trading!

To summarize: a humble block of 2000 gold futs (GC) taking out the bid stack, and slamming the price of gold, managed to halt the gold market: one of the largest "asset" markets in the world in terms of total notional, for 20 seconds.
Here is Exhibit A of either market manipulation or yet another broken market from Nanex:
December 2013 Gold (GC) Futures Depth of Book

Zooming in on the drop and showing the trading halt.

And just a reminder of China's gold demand:

So who's dumping huge contracts to slam down the gold price? At this moment its unclear. JPM is now net long gold. They could be slamming the price to add to positions. Then again so could China. The most likely scenario is that the US Fed, ahead of its stated intent to taper, is pushing down the price knowing full well, that it will have to reverse course, and actually continue to taper, possibly even increasing it, to keep markets from tumbling and US interest rates from skyrocketing above 3%.

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