Gold Vulnerable To Manipulative Sell Off In June - Bargain Hunters Ready And Waiting

GoldCore's picture

Friday’s AM fix was USD 1,254.00, EUR 921.04 and GBP 749.33 per ounce.

Thursday’s AM fix was USD 1,254.00, EUR 921.04 and GBP 749.82 per ounce.

Gold fell almost 1% to a near four month low on Friday, extending its losing streak a fourth consecutive day. For the week, gold lost about 3.5% for its worst decline since late November 2013. Heavy technical selling throughout the week sent bullion prices below $1,250 for the first time since February 4.

Gold in US Dollars - 1 Minute, 5 Days - (Thomson Reuters)

The move lower this week would appear to be technically driven as there was no negative headline data, obvious reasons for price falls or indeed evidence of physical gold selling. Indeed, the mood music for gold is quite positive - especially the worsening situation in Ukraine and attendant geopolitical risk. Gold may have been weighed down by book squaring ahead of month end and technical selling by commodity funds.

One plausible factor for gold’s weakness is the ever increasing, “irrationally exuberant” appetite for risk globally which may be impacting gold. Yesterday, the poor U.S. GDP number, which was much worse than analysts had forecast, did not lead to the bounce in gold that one would have expected. Nor did it lead to weakness in permanently levitating stock markets which continued on their merry way higher.

The simplistic view that the U.S. economy’s poor performance in the first quarter is purely weather related remains prevalent. This is despite increasing evidence that the U.S. consumer is struggling and close to being tapped out. The latter scenario is likely the case which will prove bullish for gold in the long term.

Gold premiums in India almost halved this week on the belief the new government will ease restrictions on imports of the precious metal thereby increasing demand. Indian premiums fell to $30-$40 an ounce over the global benchmark, from $80-$90 last week, dealers told Reuters.

In China, gold premiums ticked slightly higher this week but remain at  around $3 per ounce. Chinese premiums have remained depressed this week, which suggests demand in China has not yet picked up on this week’s price weakness.

Technically, gold is vulnerable to a further fall to test what appears to be a double bottom between $1,180/oz and $1,200/oz. This is particularly the case in the very short term, in other words, today and early next week.

It is worth considering seasonal trends and June is traditionally one of the weakest months for gold (see heatmap). Gold's 5 year and 10 year average performance in June is negative.

Gold Seasonality Chart - Heatmap (Bloomberg)

It is also worth considering last year's performance. Gold saw massive concentrated selling in April and further weakness in May - from $1,476/oz to $1,386/oz. Then June saw gold fall again, from $1,386/oz to the $1,200/oz level at the end of June which marked the end of the 2nd quarter, 2013.

This is a time when traders, investors and the media take stock and evaluate the relative performance of various assets. If one were attempting to paint the tape through price manipulation, one would aim to have gold lower at mid year and year end. This is exactly what happened.

This had the effect of greatly reducing "animal spirits" in the gold market and snuffing out the potential for rallies given the very significant global demand that was occurring, especially in China.

Gold then bounced sharply in July and August prior to giving up some of those gains in September, trading sideways in October and then trading lower in November and December prior to the what appears to be the second bottom - exactly at year end 2013 (see chart below).

Gold in U.S. Dollars, Daily, 2 Year - (Thomson Reuters)

Momentum is a powerful force and the short term trend is down and therefore further weakness in the coming days and in June is quite possible.

However, gold's 14-day relative-strength index fell to 31.2 yesterday. The RSI is an important tool in a traders arsenal. These are the lowest levels since December and being near the 30 level indicates we are due a bounce soon.

Gold frequently sees weakness and bottoms soon after options expiration which took place Tuesday. .
Also, $1,200 should remain support as the $1,200 level is the average cost to produce an ounce of gold globally.

The fundamentals are continuing and heightened geopolitical risk and robust global demand as seen in the recent World Gold Council data. Chinese demand has fallen somewhat in recent weeks but there is now the possibility of the return of Indian gold demand with the newly elected Modi government in India.

While gold is vulnerable technically to further weakness, its fundamentals remain sound. Some of the important gold related stories and developments this week which could yet propel gold higher include Putin’s declaration that Russia and China need to secure their gold and foreign exchange reserves and China’s plans to launch a physical ‘Global Gold Exchange’.

Overnight, ANZ Bank confirmed the story that it is seeking participation in the new international gold exchange in Shanghai. ANZ China CEO was quoted in the Wall Street Journal as saying "we are very keen to play a role in such a setup."

Currency wars are heating up again and some of the key developments in recent days and weeks are gold bullish.

In recent weeks, Russia dumped a record amount of US treasuries and Russia’s central bank buys 28 metric tonnes of gold worth $1.4 billion in April alone. Last week Russia and China announced a landmark economic agreement which includes a natural gas deal worth $400 billion and increasing use of their own currencies in bilateral trade.

This week Putin said Russia and China need to secure their gold and currency reserves and Russia set  up the Eurasian Economic Union with Belarus and Kazakhstan. Armenia are to join within a month and Kyrgyzstan within a year.

This comes against a backdrop of China openly calling for a de-Americanization of the world in recent months and China, Russia, Iran and 21 other countries signing an agreement bolstering cooperation to promote peace, security and stability in Asia.

China is buying natural resources and hard assets globally and investing in infrastructure in Africa and West Asia in order to extract these natural resources. China is importing unprecedented amounts of physical gold and senior Chinese policy makers and officials have gone on record regarding how they view gold as in important strategic and monetary asset.

Thus, while gold is vulnerable to weakness in the short term, the smart money is again accumulating and will use this latest bout of selling to acquire gold at what will in time be seen as bargain prices.

All fiat currencies including the dollar, euro and pound are vulnerable to devaluations. As one astute commentator said on Twitter this week, being able to acquire cheaper gold given the state of the world today is "like being given discounts on life-rafts on the Titanic ..."

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doofenshmirtz's picture

Damn! I bought in May! Oh well.....

mogul rider's picture

Until the last last fish trapped at 1900 gives up which should be any day now as the market rockets into oblivion without them attached


I Write Code's picture

Exactly - it's a long squeeze!


Longarm's picture

I can't believe I can still trade these paper dollars for gold. Screw ozs. I'm going for lbs.

RevRex's picture

How many years now has it been the time to buy?

GFORCE's picture

Long and wrong. This is simple price action playing out. To claim gold is ONLY down due to manipulation is embarrassing. The hyperinflation scaremongering proved false and trapped many suckers into the long side of an incorrect and non-performing investment. Hopefully they've learned the lesson.

Kreditanstalt's picture

The entire SYSTEM - of futures, naked shorts, "leasing", endlessly-rolled-over contracts - is manipulative.  It's not just ONE trader somewhere breaking some government "law", but the way business is done.

The ongoing rigging and manipulation is made possible by the established way of doing business - PART OF THE SYSTEM.

This will never end until the ability of these paper futures to determine the price of spot DELIVERED physical gold is removed.

Quinvarius's picture

If it makes you feel better to believe this is anything but a gift from bankers selling client assets in order to save a derivative mistake, go for it.  They will run out of other people's property.  Smart people are draining the system dry.

Lets face it.  Everything horrible that was predicted by gold longs, using math and basic economic understanding, is happening.  And they also predicted the bankers would steal and sell everyone's gold.  So there you have it.  Done and done.  The only suckers are the ones taking on gold debt and the ones who think they have a vault at a bank with any gold in it.  And the last prediction of gold longs?  Gold goes up all at once and you either hold it or you don't.

SMC's picture


Personally, I prefer the value of a constrained resource (gold, silver, etc...) over an unconstrained resource (Federal Reserve Notes are worth approximately 10% of their original value).

SMC's picture

Caveat emptor.

Verify the quality (and of course quantity) of physical deliveries.

Read and understand all the "fine print".

Hongcha's picture

Everybody and his brother is now sure we are heading for new lows in precious metals.  Everyone just knows.  The short end of the boat is full and eveyone is locked and loaded short.  Nothing could be more predictable.  How much longer will this abortion of a market be able to function?

DoChenRollingBearing's picture

Until the cows come home?


russwinter's picture

A Question of London and Western Central Bank's Remaining Gold;

alexcojones's picture

Bring on the cheap Gold, bitchez, said a Chinese spokesman today.

And yesterday and tomorrow, until it is ALL gone.


RafterManFMJ's picture

Buy Gold in June as the markets swoon?

Buy metal in June thank the Bankster's granting an unintentional boon?

The endgame gyrations scream metal in June, loud as hounds baying at a treed coon?

D Plainview's picture

I'll give them quail prices.

TruthTalker's picture

With the manipulation does anything that happened historically matter?  Do charts and cycles come into play when one huge naked short sale can plunge down the price?  The US dollar is on its way to being worthless and a worthless scheiss dollar being put into play domestically - we are headed for 3rd world status - gold is worth owning because of the political climate and the crooks stealing our $.  Who cares what charts say!

MeelionDollerBogus's picture

The manipulation is historical too so the patterns are the same.

Past naked short cycles have shown what current ones & future ones will do. You have to watch volume, options, margin available and wars in addition to prices in every fiat, plus the debasement of the fiat with bonds priced in each. If you miss one detail you miss them all. It's like a hologram being formed from various reference beams and you can't just take one out and still make sense of the image.

kurt's picture

Agreed. Must not the people who dump dollars to slam gold KNOW that the money to do so is worthless. These practitioners can't think the dollars used to do so were "hard earned" like the people who struggle every day to obtain them by working. What a horrendous disservice they do to the cache of the money they pretend to protect. Can you begin to imagine the jaded cynicism of the technition who loads the tables with the numbers they need to produce the result they want, to paint the chart. I'm just saying how can they NOT know what assholes they are?

MeelionDollerBogus's picture

What century are you from? Those top-most insider-trades make a deal & the ALGORITHMS write the tables & tape in nanoseconds ahead of time and push the market to meet that as a goal-seeker. You can't be serious in thinking an actual human did this?

RafterManFMJ's picture


And you think it's hard to jail a banker - try jailing an algorithm!

Sorry folks, those durn algos fucked ya!

Nobody coulda seen that com in'!

MeelionDollerBogus's picture

I've got it, we'll install McAfee anti-virus and shove the algos into the quarantine!

Latitude25's picture

The magic words "scheiss dollar".  Is that you Jim Willie?

quasimodo's picture

Funny, I thought any month of the year was fair game the way it's been butt rammed lately.

Cycle's picture

I think that based on historical price-time cycles, gold may have already made its low for this year, and this cycle model suggests that prices will be rising for the rest of this year and beyond.

Haole's picture

Do your models really project a roughly $13 silver "price" within a year?

Cycle's picture

Well, yes. A more relaxed view is that silver prices bottom after gold starts its rise - based on historical cycle patterns. Since the turning point for gold seems to be in the June time frame, model performance judged over the next few months should give an indication of which PM model, if any - or both - fail.

Haole's picture

Interesting, thanks.

MeelionDollerBogus's picture

indeed and be ready for it. As physical goes, load up what you can after food. As paper goes if you like some, USLV moves 3.92x to silver & silver moves 2x to gold like an ETF so load up on physical silver & think about some paper/electrons too if you fancy it.

Over time the equations roughly work out to 2700 x USLV = SILVER (usd) 3.92 and gold / silver 0.5 = 285. While one can express that as silver / gold 2 properly I like getting whole numbers or easy fractions (math background, it's a habit, machines don't care either way).

Treason Season's picture

Poly says $1.500 + then wait and see. @ the Lounge

gmrpeabody's picture

This rocketship is blasting off...

To the moon, baby...

oh, wait...