"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, January 6, 2014

A lot can Happen in One Second...

Apparently a $30 plunge among them. Nanex is reporting that in just one second, 4,000 contracts traded hands! Yes, you read that correctly - FOUR THOUSAND!

Eric Hunsander, according to a report by Dow Jones, stated that in the past, 1,000contracts/second has halted trading in gold. He went on to say that 2,000 contracts/second is very rare.

I will leave the implications to the reader.

It is quite remarkable to say the least.


AS those of you who regularly read this blog know, I have minced no words in mocking those whose constantly sing "Gold is being "FLASH CRASHED" by nefarious forces ( usually references to the bullion banks). I have no doubt that there have been large orders that have taken prices down, sometimes during the thin trading conditions in early morning European/N America hours - what I take strong objection to is that these orders were the work of the big bullion banks. My view is that those orders were from hedge funds.

I think I have provided enough documentation to make my point so I am not going to waste any more of the reader's time in rehashing this once again other than to say that my view is that the bullion banks have been buying gold on the way down; not selling it. After all, when JP Morgan's HOUSE ACCOUNT has been the largest stopper of gold during the December gold contract's delivery process, it is a no-brainer that they were buying the metal from large speculators who were selling it. They ( the bullion banks) provide resistance to gold ( SELL) on the way up; not on the way down! I have written quite often on that in the past.

However, today is a great example of a legitimate FLASH CRASH. You will note that it occurred during a COUNTER TREND RALLY in gold during which the price had rallied some $65+ off the recent low.

I had remarked about the dwindling volume during this rally suggesting that it was not fresh, hot money taking long positions in gold but rather the ABSENCE OF WILLING SELLERS that had created an air pocket above the market which provided very little in the way of resistance to the recent "MELT UP" we have been watching taking place in the metal.

Index funds, rebalancing their portfolios ( more exactly - lots of front running by some traders ahead of and alongside of that large index fund buying), must buy gold contracts irregardless of current fundamentals in order to align their books with the new index weightings. Most traders who understand that are not going to fight that forced buying but will merely stand aside and let it happen while they wait for a higher price level against which to sell or perhaps even get long for a very short term trade.

Today, as gold rallied into an important resistance zone centered near the $1245 region, at 10:14 EST, a flurry of orders resulted in 11,662 contracts trading hands. That is no small feat! The result was a drop in the gold price of some $30 in one minute. Now my friends, THAT IS A FLASH CRASH, not the crap that these others have been telling us about. You will also note that it took place during New York trading hours while the pit session was open; it was not something that occurred during the low liquidity overnight hours. I should also note here that the size of the order to sell was so large that many traders believed it was an erroneous trade and that CME would note that. Well, CME made a statement saying that ALL GOLD TRADES WOULD STAND. So much for any notion of a bad trade!

Can you see the difference/distinction?  Note how the volume during the UP BARS - in BLUE) continued to dry up as the market melted higher. Now look at the MASSIVE spike in volume the accompanied the huge spike in the price range!

This large selling took place during an UPMOVE in gold that has been taking place since the beginning of the year, not during a downtrending phase and the volume was ENORMOUS.

I will try to get a bit more information on this for you as the day progresses but needless to say attempting to trade something like this is not for the faint of heart. I will want to see the final volume of trade for the rest of the day as well as the data from the CME Group tomorrow to make a final assessment but needless to say, gold is now at a crossroads. If, and this will be a big, big "IF", the bulls can take price through today's high and they can do that on big volume, then gold has a very good shot at pushing up for a test of the last overhead resistance barrier noted on the chart. I would want to see a push past that level than can be maintained to convince me that the tide has finally turned in favor of the metal in regards to higher prices down the road.

The speed at which the price went down, and the speed at which it recovered, is very, very interesting. It looks as if we have a battle going on with both sides dug in for now. We'll see which side gains the advantage.

Robust physical demand from Asia has put a floor in the market for now. The big question is whether or not money managers in the West want to tie up portions of their client capital in gold for 2014 or stick with their large and lopsided exposure to equities.

My leaning at this point is that gold is now entering a range trade and will be capped on the upside with good physical offtake of the metal providing a solid floor of support on the downside. The range looks to be roughly $1250 on the top and $1200 on the bottom. A push below $1200 that changes the handle on the metal back to "11" would be negative both technically and psychologically. A push past $1265 would provide enough excitement to take price up towards a test of $1300. Western investment demand is now the key to whether or not we get the latter.