ROSS NORMAN - Flash Crash in GOLD - Whodunnit ?

Gold saw a massive 24 tonne sell order (7,800 contracts) at 08:20 a.m. New York time - bang on the opening of the world's largest gold exchange - which a fall of 2.25% in the market price.

If the selling was year-end profit-taking then it was inept. Dealers try and finesse big sell orders into the market to get the best (highest) price for the biggest volume they can and thereby optimize profit - that requires stealth. If on the other hand it was a "fat finger" episode as has been suggested with a broker said to be looking to roll his December gold futures contract then it was even more inept.

More likely this could be a short play, with the seller looking to trigger stops below the market at $1730 and thus extend the move significantly lower and thus increase his profits. If so, he certainly caught the market on the hop as the move is counter-intuitive with everything else that is going on in the economy.

Rising concerns about whether Democrats and Republicans can find common ground between tax increases and entitlement spend reduction remains to be seen. More importantly, the US reaches its law-enshrined debt ceiling of $16.4 trillion early to mid February 2012. That promises fireworks again as it did in August 2011 when gold hit an all time high of $1922 as the market stares into the abyss of a possible US debt default.

Against the current economic backdrop, a short seller would have to be quite brave. In short, we will not know the identity  or the reason for the sale for a while. Longer term gold investors should not however be deterred - the rationale for buying gold is as favorable as ever and a degree of patience required.

Ross Norman
CEO
Sharps Pixley, London

Source: Email