A reported 31-tonne sell order on the CME rocked gold, which saw prices collapse within hours from a high of $1,790 in London to $1,703 during New York trading, followed by a further dip to the low of $1,687 in out-of-hours electronic trading. It marked a fall of over 6%, which erased roughly half of the gains made since the beginning of the year.
Much has been placed on the testimony by Federal Reserve chairman Ben Bernanke, but other markets saw less impact, leading to suggestions that it simply provided an excuse for a particular "non-U.S." fund to bail and take profits in dramatic fashion. It may be possible that the seller had hoped the 1,000-lot sell order would trigger stops and thereby exaggerate the move lower, allowing the buying to potentially come back in at a much lower price. Like the price, there is much speculation over the motive.
Ordinarily, if a seller wanted to get the best price for his metal he would seek to finesse the selling over time, hunting out liquidity (finding people who are on the other side of his sell order), and thereby ensure he gets the best possible profit. This seller was clearly simply out for effect.
Either way, market watchers enviously wishing to get into gold at an attractive level cannot complain that windows of opportunity do not present themselves from time to time. The long-term gold story remains unchanged and that is to say :
- It is largely unreadable and volatile in the very short-term, driven as it is by fast-moving news, political actions, policy decisions and economic events that are almost impossible to predict. In this environment, short-term speculation is frankly a bit of a mugs game.
- However, it remains very positive for longer term investors (particularly pension funds) with very positive fundamentals (the market is supply-constrained, and demand remains robust) and the broad macroeconomic issues remain unchanged. Couple this with shifting pro-gold Central Bank attitudes plus producers manifestly opposed to hedging (and thereby crushing the bull run) and you have a compelling case for buying and holding gold. Best of all, new ways of accessing gold with a multitude of products over a wide range of jurisdictions is likely to continue to fuel investment demand.
The tone of our reports might suggest (as one reader did) that we are permabulls — we are not and we will be first to let you know when our position changes... probably sometime after 2015.
Gold is currently trading at $1,720 — so a bounce of 2% so far. We would expect gold to perform a 50% retracement to $1,738 within the next few days to confirm the short-term bullish outlook. Failure to do so may well lead to consolidation at these lower levels pending a new direction being confirmed. Reaching $1,738 and the speed that it does so will give us all a very clear indication of just how much buying interest really does underpin this market.
Norman is owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.