Gold Crush Started With 400 Ton Friday Forced Sale On COMEX

Tyler Durden's picture




 

On The Forced Sale...

Via Ross Norman of Sharps Pixley,

The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand.

Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".

Futures trading is performed on a margined basis - that is to say you have to stump up about 5% of the actual cost of the gold itself making futures trades a highly geared 'opportunity' of about 20:1 - easy profit and also loss ! Futures trading is not a product for widows and orphans. The CME's 10% reduction in the required gold margins in November 2012 from $9133/contract to just $7425/contract made the market more accessible to those wishing both to go long or as it transpired, to go short. Soon after we saw the first serious assault to the downside in Dec 2012, followed by further bouts in January 2013 - modest in size compared to the recent shorting but effective - it laid the ground for what was to follow. One fund in particular, based in Stamford Connecticut, was identified as the previous shorter of gold and has a history of being caught on the wrong side of the law on a few occasions. As baddies go - they fit the bill nicely.

The value of the 400 tonnes of gold sold is approximately $20 billion but because it is margined, this short bet would require them to stump up just $1b. The rationale for the trade was clear - excessively bullish forecasts by many banks in Q4 seemed unsupported by follow through buying. The modest short selling in Jan 2013 had prompted little response from the longs - raising questions about their real commitment. By forcing the market lower the Fund sought to prompt a cascade or avalanche of additional selling, proving the lie ; predictably some newswires were premature in announcing the death of the gold bull run doing, in effect, the dirty work of the shorters in driving the market lower still.

This now leaves the gold market in an interesting conundrum - the shorter is now nursing a large gold position and, like the longs also exposed - that is to say the market is polarised between longs and shorts and they cannot both be right. Either the gold bulls - like in a game of tug-of-war - pull back and prompt the shorters to panic and buy back - or they do nothing, in which case the endless stories about the "end of gold" will see a steady further erosion in prices. At the end of the day it is a question of who has got the biggest guns - the shorts have made their play - let's see if there is any response from the longs to defend their position. 

 

On Inventories...

Via Mark O'Byrne of Goldcore,

Gold futures with a value of over 400 tonnes were sold in hours and this is equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions. 

It may again be the case that bullion banks with large concentrated short positions are manipulating the price lower as has long been alleged by the Gold Anti Trust Action Committee (GATA). The motive would be both to profit and also to allow them to close out their significant short positions at more advantageous prices and possibly even go long in anticipation of higher prices in the coming weeks.

Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories.

The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.

Comex gold bullion inventories have slumped 17% already in 2013, falling to just 286.6 metric tons of actual metal on April 11, the lowest since September 2009. 

This means that futures speculators on Friday sold a significant amount of more paper gold, in an hour or two, then the entire COMEX physical gold bullion inventories.

Interestingly, the drop in Comex inventories would be the biggest for a whole year since 2001, when bullion began its secular bull market.

Absolutely nothing has changed regarding the fundamentals of the gold market and bullion owners are advised to again focus on the long term and the vital diversification benefits of owning gold over the long term.

Although some Federal Reserve policy makers said that they probably will end their $85 billion monthly U.S. bond purchases sometime in 2013. The key word is ‘probably’ and it remains unlikely that the Federal Reserve will stop their debt monetisation programmes any time in 2013 or even in 2014.

Even if the Fed did end them, ultra loose monetary policies and negative real interest rates are set to continue as are competitive currency devaluations and currency wars - two other fundamental pillars supporting the precious metal markets.

Buyers are now presented with another very attractive buying opportunity. We always caution against trying to “catch a falling knife” and buyers should hold off until we get a few days of higher closes or a weekly higher close. Alternatively, they should consider dollar, pound or euro cost averaging into a position at these levels.

Sellers should consider holding off as if contemplating selling they may have missed their opportunity and if they have to sell they may be best placed holding off until prices bounce or recover. Sellers are now disadvantaged both in terms of price but also in terms of premiums that have spread on some physical bars such as one kilo bars.

In the course of gold’s bull market, vicious sell offs like this have often presaged material weakness in stock markets and this may occur again. 

Gold’s ‘plunge’ is now headline news which is bullish from a contrarian perspective. Less informed money is again selling gold or proclaiming the end of gold’s bull market. 

The smart money such as certain hedge fund managers, high net worth individuals, pension funds, family offices, institutions and creditor nation central banks and will see this vicious sell off as an absolute gift and will accumulate again on this dip.

A long term allocation to physical gold bullion to hedge systemic and monetary risk remains vital.

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Mon, 04/15/2013 - 09:42 | 3449608 CharlieSDT
CharlieSDT's picture

Go. To. The. Coin. Shop.

What? You're saving the cash for something else? Overpriced College tuition, no way dude, that's a scam. A diamond ring for your mediocre entitled Western girlfriend? Please, I beg you, don't. A new flatscreen TV or iPhone 5, a new car, some overpriced drinks to hit on so-so chicks? This is not the right time for that. Buy gold. Buy silver. Buy some peace of mind. Gold has no counter party risk. You can't print it. It has secrecy, in an age of Big Brother monitoring all other financial transaction. And, there's a huge paper market of it that is crashing and the dealers are still selling the physical version for the same basic price.

This is a once in a lifetime opportunity, in my opinion. Buying gold right now is like stepping out from in front of an onrushing bus with two seconds to spare. Waiting till later (for those without any yet) is like trying to stop and pick up a coin in the street first.

http://www.singledudetravel.com/2013/04/back-up-the-truck/

Mon, 04/15/2013 - 09:45 | 3449623 Banksters
Banksters's picture

I assume the bank that was forced into the sale is in excellent financial shape. sarc off.

Mon, 04/15/2013 - 09:51 | 3449639 Clint Liquor
Clint Liquor's picture

"The continued sell-off in gold and silver futures overnight has occurred in high volume, points out TD Securities. "Volumes have been exceptional. We are already at 280k contracts before CME opens--a level which would be an incredible day as it is," TDS says. "Most of the volume has been on downward sweeps." As of 8:54 a.m. EDT, Comex June gold was $80.20 lower to $1,421.20 an ounce and May silver was down $2.026 to $24.305. TDS says potential for margin hikes from CME Group "could apply further pressure to any one that is still trying to maintain a long position."

Mon, 04/15/2013 - 09:55 | 3449681 Passage
Passage's picture

Trading alert: massive AUDUSD carry trades unwinding underway. AUD registered the biggest drop against USD since last week's close.

Don't miss the boat........Once again USD > AUD soon

Mon, 04/15/2013 - 10:02 | 3449724 derek_vineyard
derek_vineyard's picture

tylers---i'm in a paired trade:  short spx and tnx vs long gld

wtf do i do now?  

Mon, 04/15/2013 - 10:06 | 3449751 francis_sawyer
francis_sawyer's picture

Jump you fucker...

~~~

But I'll gladly take your gold off your hands before you go Geronimo...

Mon, 04/15/2013 - 10:12 | 3449789 MillionDollarBonus_
MillionDollarBonus_'s picture

10 reasons why I hate goldbugs:

  1. They cry about ‘manipulation’ every time they lose money
  2. They hoard gold instead of investing in the economy, denying millions of people jobs and income growth
  3. They undermine our national currency and national interests
  4. They selfishly pursue profit at the expense of others
  5. They keep ‘stacking’, even when they’ve already lost half of their family’s retirement
  6. They have no understanding of basic economic principles
  7. They snobbishly reject all other investments
  8. They have a lemming-like mentality, and buy in panic whenever they see any second-rate article about 'armageddon' or 'hyperinflation'
  9. They have an inability to see the other side of the gold argument
  10. They rush to one another’s defence in pro-gold arguments, even if they have no understanding of the argument at hand
Mon, 04/15/2013 - 10:21 | 3449841 TerminalDebt
TerminalDebt's picture

2. If gold is not money how does hoarding gold take anything out of the economy? The opposite should be true. I could either take my money and hoard it under my bed or buy useless shiny metal and pump that cash back into the economy. Seems to me you have no idea what you're taking about.

Mon, 04/15/2013 - 10:28 | 3449891 MillionDollarBonus_
MillionDollarBonus_'s picture

Gold is treated like an investment. Investment money that goes into gold should be financing companies and supporting our government. That's why I hate goldbugz.

Mon, 04/15/2013 - 10:31 | 3449902 Pinto Currency
Mon, 04/15/2013 - 10:33 | 3449919 strannick
strannick's picture

B

Mon, 04/15/2013 - 10:35 | 3449937 SafelyGraze
SafelyGraze's picture

we need to go ahead and repatriate the german gold so that we can bail-in the stuff

huggs,

troika

Mon, 04/15/2013 - 11:01 | 3449990 Pinto Currency
Pinto Currency's picture

 

And the global silver trading volume is about 10x the volume of when silver dropped from $49 in 2011.

With infinite digital money you can create infinite trading volume.

And it is so much easier than actually producing silver.

(note on the netdania.com link, click on 'D' for day and then the green and red bars for daily trading volume.)

Mon, 04/15/2013 - 15:09 | 3451695 Jack Napier
Jack Napier's picture

I liked MDB better when he was a troll trying to be funny rather than a clown who isn't funny.

Here's 1. for you. Only gold and silver can extinguish debt according to Austrian economics, which in short order will be looked to as the authority when counter party risk and naked leverage pull the rug out from under Keynesian economics, and posterity asks what the hell were they thinking? Once that occurs, gold and silver will rise to whatever price point is necessary to cancel out trillions in debt, otherwise a global default will occur, and all fiat and all paper financial vehicles will be worthless anyway in which case tangible assets like gold and silver will be the only value left.

Your cardinal sin is measuring your wealth in debt based currency. Anyone who knows their history knows that dollars used to be measured in grains of gold and silver, not the other way around. This is because of their inherent properties and unique qualities that only metals have which endows them as the ideal money - fungible, divisible, durable, portable. Nobody owning gold and silver has lost anything except the ability to buy more than they already bought for cheaper prices.

Mon, 04/15/2013 - 11:19 | 3450196 smlbizman
smlbizman's picture

be thankful we have cnbs to explain and keep us up to date on the facts of this gold market and others....and on a serious side, why was chris whalen on this bullshit show and playing along with the gold is useless mantra...this morn...he is now on the list

Mon, 04/15/2013 - 10:32 | 3449910 Boris Alatovkrap
Boris Alatovkrap's picture

Spend (or invest) yours money as you like and save hate for despiteful banker and insurance salesman.

Mon, 04/15/2013 - 11:05 | 3450092 caconhma
caconhma's picture

"400 tonne of gold futures selling in total equates to 15% of annual gold mine production"  Wrong!

The annual gold production is ~ 2,500T/y. Removing both China and Russia production (who keep gold for themselves), the annual gold mine production is below 2,000T.

We are observing paper-gold liquidation. Banks are closing their short position. PM traiding might lead to financial market collapse.

Mon, 04/15/2013 - 12:54 | 3450831 Lore
Lore's picture

Somebody's got a case of the Mondays.

Mon, 04/15/2013 - 15:48 | 3452099 Boris Alatovkrap
Boris Alatovkrap's picture

Who is down-arrow Boris!? Why is down-arrow Boris!? What is Boris say so offensive giving!? Is Boris wrong!? Or is people giving hate to Boris!?

Mon, 04/15/2013 - 10:33 | 3449929 LawsofPhysics
LawsofPhysics's picture

Gold is not an investment it is a safe store of value.  Wake me when it goes under $300 an ounce, that's dollar cost average of my physical holding troll.  Besides, I never have a problem exchanging it for the value of another's labor.  Troll harder loser.

Mon, 04/15/2013 - 10:35 | 3449941 GaryNeville
GaryNeville's picture

Why do you need Gold money to finance your goverment?? - you've got Ben bernanke! 

Mon, 04/15/2013 - 11:19 | 3449953 OneTinSoldier66
OneTinSoldier66's picture

"Gold is treated like an investment. Investment money that goes into gold should be financing companies and supporting our government. That's why I hate goldbugz."

 

Money that goes into the Government should be being used to pay off the National Debt. Just constantly racking up more debt by forever spending more than it takes in. What a joke.

Mon, 04/15/2013 - 10:38 | 3449955 Dr. Gonzo
Dr. Gonzo's picture

I don't care to support the fascist govenment. It's a lifestyle choice.

Mon, 04/15/2013 - 10:41 | 3449976 GCT
GCT's picture

Follow the moeny MDB and you will find the CB's around the world buying the stuff up.  So your post is not even relevent.

Mon, 04/15/2013 - 10:47 | 3449994 firstdivision
firstdivision's picture

I didn't realize that you became the dictator of the world and people are only allowed to spend their hard earned IOU's, from slaving away at a job they loath, on what you think they should spend them on. That's why I hate idiots that think their opinions are the only one that matters.

Mon, 04/15/2013 - 10:46 | 3449999 slightlyskeptical
slightlyskeptical's picture

Financing companies? At 1-2% interest? If the FED wanted this Gold to go into loaning money to corprorations they wouldn't keep the ZIRP policy going. Besides with fractional reserve banking the plunge in Gold has probably reduced the available base, so lower Gold means less loans all around.

BTW I love #4 - Goldbugs are only trying to make money at the expense of our for-profit corporations. LOL

Mon, 04/15/2013 - 10:53 | 3450027 Lordflin
Lordflin's picture

MDB... Government is as big a collection of crooks as I have ever seen... You support it if that is your desire... So far as investing in this system... due to it's criminal manipulation it has become a buzz saw grinding everything it is fed into pulp. You think you are on the winning side of the trade, or so I am guessing, but your turn will come when the saw heads your way. This market does not trade on fundamentals but on the capricious whims of a few corrupt men.

You sir, are a fool... and if anyone here is blathering on while not understanding the arguments you are at the top of the list...

Mon, 04/15/2013 - 10:56 | 3450040 Diogenes
Diogenes's picture

So where do you think the money goes? They spent it, they didn't burn it. Somebody else got it and they spent it. Then that person spent it and so on. The velocity of money.

Instead of hiding their money under the mattress the gold bugs put it back into circulation. And all they got for their valuable money is some useless shiny metal.

What if they bought gold in the form of jewellery? Wouldn't that stimulate the economy and keep money in circulation? Just think of those golden discs and rectangles as jewellery and it will all become clear.

Mon, 04/15/2013 - 10:57 | 3450045 caimen garou
caimen garou's picture

the feeling is mutual million dollar dickhead, i hate people that support ponzi markets run by idiots that think the american people are stupid! you should be a pileofcraptician as it never fails that idiots run this country and you are the prime example of an idiot! is krugman your daddy?

Mon, 04/15/2013 - 10:59 | 3450051 ebworthen
ebworthen's picture

MDB said:  "...gold should be financing companies and supporting our government."

You mean the companies that offshore employment and offer 29 hours/week to avoid paying benefits and the government that colludes with them to bleed the middle class to death, debauch the currency, punish savers, fund foreign banks, bailout said corporations, kill the rule-of-law and send hundreds of millions to dictatorships around the world?

Why would I finance those companies and support that government?

Mon, 04/15/2013 - 10:57 | 3450052 bnbdnb
bnbdnb's picture

Money is still changing hands numbnuts.

Mon, 04/15/2013 - 12:13 | 3450560 Alexandre Stavisky
Alexandre Stavisky's picture

If Gold were such a "barbaric relic" etc. then why seize and revalue against it in 1933 (Hitler's rise BTW) and then have Nixon repudiate the standard in 1971.  Ultimately it looks rather as though the shiny metal really is the backbone of confidence and faith in a monetary system.  But unless the pirates ride herd and drive the masses into the fiat, step devaluations, constant dilutions, and routing mechanisms to direct it into their brokerage houses and banks DON'T WORK. 

GOLD is enemy number 1.  The system collapses very, very soon unless its allure and purchasing powers are destroyed.

Prior to an enemy sending full invasions to strip aboriginals of all possessions and liberty, heavy artillery aimed at every stronghold is exhausted.  Those strongholds are the last bastion of defence.

Better to have gold price drop than surrender it to the much greater depredations of a system endemic with corruption.

No One has any trust or confidence anymore in the system.  TBTF means it has already failed.  Failure to prosecute means failure of rule of law.  Money system has lost the mandate of heaven and men of action have turned their backs upon it to shun its use.

Mon, 04/15/2013 - 15:15 | 3451817 Jack Napier
Jack Napier's picture

Gold is enemy #2, silver is #1 :þ Silver is more practical for daily hand to hand transactions, the most viable competition for fiat currency, which is why it is more often crushed, and bankers have tried to erase it from existence by wasting it and squandering it with undervalued pricing causing government stockpiles to disappear. This will ultimately make it much more valuable. Gold is better for wealth preservation in a smaller space.

Mon, 04/15/2013 - 11:59 | 3450453 TheMeatTrapper
TheMeatTrapper's picture

I'll do damn well what I want with my money and you have nothing to say about it. My money is mine and belongs to my heirs, not you and your false god the government. The fact that you think you I have an obligation to support your socialist ideas is why there will be war, and you will lose. 

Mon, 04/15/2013 - 16:44 | 3452537 rich_wicks
rich_wicks's picture

If gold were $10,000 an ounce, every mine would be digging as fast as they can to recover it.

Meanwhile, they would be pumping out iron, copper, aluminum, lead, zinc, you name it as WASTE products which they would still have to refine in order to get the gold.  All that scrap material would end up in inventories.

Commodity prices for raw materials would plummet, raw resources would be cheap, companies could purchase them on the low, and everybody would benefit.

That's the horrific consequences of having an artificially high gold price.

The consequences of an artificlally low gold price are, mines close, commodities get driven up, there's no secure place to place your wealth, the central banks keeping creating new money to try to stimulate the economy, and gold becomes more and more scarce, until it explodes in price anyhow.

I'll invest again in the crooked financial system when it's not crooked anymore.  Jon Corzine isn't in jail, neither is Franklin Raines, Dick Fuld, or Angelo Mozilo - or Jamie Dimon for that matter.  LIBOR was rigged, nobody went ot jail.  HSBC was caught money laundering, another fine.  Until that ends, I'm not going to invest in it, sorry.

Mon, 04/15/2013 - 10:31 | 3449898 Pinto Currency
Pinto Currency's picture

-

Mon, 04/15/2013 - 10:30 | 3449900 Boris Alatovkrap
Boris Alatovkrap's picture

Gold is not hoard money. Boris is put gold to good use in mouth.

Mon, 04/15/2013 - 10:45 | 3449985 mick_richfield
mick_richfield's picture

I thought you guys just used iron or stainless steel or something.

Am I dating myself, tovarisch?

( I might as well.  No one else will date me. )

Mon, 04/15/2013 - 12:47 | 3450805 Joe Sixpack
Joe Sixpack's picture

Borscht and vodka tend to tarnish iron and even stainless steel.

Mon, 04/15/2013 - 15:51 | 3452124 Boris Alatovkrap
Boris Alatovkrap's picture

Are you disrespect of Borsch!? Vodka is good for teeth because is kill all oral bacteria in mouth with impunity. Perfect for abscess tooth or when tooth is fall out! Boris is prefer Gold, but is find out (former) dentist is use Titanium.

Mon, 04/15/2013 - 10:58 | 3450057 Papasmurf
Papasmurf's picture

Gold is not hoard money. Boris is put gold to good use in mouth.

Never put anything in your mouth that makes you worth more dead than you're worth alive.

Mon, 04/15/2013 - 13:27 | 3451034 tenpanhandle
tenpanhandle's picture

Boris is put money where mouth is.

Mon, 04/15/2013 - 10:35 | 3449935 francis_sawyer
francis_sawyer's picture

10 reasons TRANSLATION [in non-sychophant-ese]

~~~

They cry about ‘manipulation’ every time they lose money [nobody LOSES money until they liquidate a position]

They hoard gold instead of investing in the economy, denying millions of people jobs and income growth [If printing money works so well ~ it ought to be easy to PRINT jobs]

They undermine our national currency and national interests ['National interests of stealing gold & oil from faraway lands so that Lisa soccer mom can get her little shit to practice]?

They selfishly pursue profit at the expense of others [YGBFKme]

They keep ‘stacking’, even when they’ve already lost half of their family’s retirement [Most of the time I have to pull 'douyble duty' so MY FAMILY will have a place to run to when their 401k's get stolen]

They have no understanding of basic economic principles [like Keynes & Krugman]

They snobbishly reject all other investments [from pets.com to pet rocks]

They have a lemming-like mentality, and buy in panic whenever they see any second-rate article about 'armageddon' or 'hyperinflation' [quick tally tells me most people here are trying to back up the truck]

They have an inability to see the other side of the gold argument [like, except for the past 100 years, it has been "money for the past 6,000 years]

They rush to one another’s defence in pro-gold arguments, even if they have no understanding of the argument at hand [not me ~ instead I prefer to beat the crap out of you]

Mon, 04/15/2013 - 11:08 | 3450108 MeMadMax
MeMadMax's picture

"Little shit to practice"

 

/quietly fears the next time he has to take a dump ^.^

Mon, 04/15/2013 - 10:20 | 3449847 dogbreath
dogbreath's picture

Just Fuck off

Mon, 04/15/2013 - 10:20 | 3449856 kurzdump
kurzdump's picture

The same points are valid for people investing in paper assets.

Mon, 04/15/2013 - 10:31 | 3449906 MillionDollarBonus_
MillionDollarBonus_'s picture

Wrong again :) Bank deposits are used to finance companies and help grow the eonomy. Pension funds also buy government bonds and help finance our government so that they can keep spending. This is a productive use of money. Gold I'm afraid, is not (sorry).

Mon, 04/15/2013 - 10:36 | 3449949 AllThatGlitters
AllThatGlitters's picture

LOL MDB. You are always funny.  You go "grow the economy" with your money.

I'll grow my stack by buying into some 10 Oz. Silver Bars, which appear to be on sale today.

The snake bars are still available with good premiums - no more expensive than generics:

http://www.pmbull.com/silver-price/  <-Live Spot Price and Solid Dealer Offers

Mon, 04/15/2013 - 11:00 | 3450072 caimen garou
caimen garou's picture

bank deposits are used to gamble at the dow casino and to be confiscated when needed by the gov. there fixed for you! big dummy! cant do this forever mdb time to get out of the basement and visit the real world!

Mon, 04/15/2013 - 10:34 | 3449934 OutLookingIn
OutLookingIn's picture

Yup!

Time for the termites to come out!

Much better to be invested in paper.

Sell gold. Sell silver. Buy equities. New highs in stocks every day.

Happy days are here again...

[sarc off]  

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