Blood In The Streets…

Baron Rothschild famously said "The time to buy is when there's blood in the streets."  

Waking up this morning to gold and silver both being smashed last night it is worth remembering these sage words…  There was even a tagline online this morning “Bullion Bloodbath”.  So what happened last night?  In Aussie dollars gold was down $46 or 2.7% and silver (brace yourself) was down $1.27 or 5.1%.  In USD gold is sitting at $1269, still above the key support line of $1255.

The rout that took out everything bar the USD last night started with reports via Bloomberg that the ECB were considering tapering their QE program and fresh off Deutsche Bank settling with the US Dept of Justice and not copping that $14b fine that threatened to bring them down.  We also had some hawkish statements from the Fed boosted by one OK manufacturing print on Monday and all of a sudden the algos went nuts.  That’s what you will read in the finance sections today.  By the way, the ECB released various denials of these rumours later last night and regular listeners to our Weekly Wrap will know that good US data print is the exception not the rule…

It’s worth just looking at some other occurrences.  Topically after yesterday’s news where we pointed out that “At the moment the gold price is being dictated more by speculative futures trading (COMEX) than fundamentals, but at some stage the rule of supply and demand must prevail.”…. we see the following price action on the open of COMEX last night

To help you visualise in metric, that is a tad under 100 tonne of gold ‘sold’ in 30 minutes, but most likely nearly all traded purely in paper swaps and reportedly only 2.5m oz (78t) available for delivery should someone actually want it.  It will be incredibly interesting to see this weekend’s COT report to see if those big commercial shorts were at play here.  The other thing you won’t read is that this happened when China is on a week long ‘National Day’ holiday.  That means no big buyers of physical on value and no reality check by the SGE (Shanghai Gold Exchange) via arbitrage.  If you think that is coincidence go back and look at previous Chinese holidays…

Speaking of coincidence you may recall in the lead up to the GFC the banks were manipulating the CDS’s on mortgage backed securities trying to scare the holders out of their positions (again, if you haven’t watched The Big Short yet, it’s an absolute must (and is now on Netflix).  This somehow makes more sense to everyday people when Margot Robbie, Brad Pitt and Ryan Gosling explain it…).  Gold and silver are the proverbial canaries in the coal mine when it comes to the financial system and are both at near record high short positions on COMEX by… you guessed it…. the big banks.  But it’s probably nothing…

Nothing really changed last night, however there is maybe just a bit of blood in the streets to take advantage of…