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Proof Gold's Latest Slam Was Not A "Fat Goldfinger"

Tyler Durden's picture




 

With December's "fat finger" in US Treasury Futures proved as nothing but an HFT algo gone wild, Nanex has turned its deep-thought to the recent halt in gold futures markets. Their conclusion, this was not the result of a fat finger, but rather the work of a high frequency trading algorithm that would pause, and (probably) test the market before continuing. A fat finger would not have had such distinguishing features.

 

December's bond melt-up was not a fat finger but an HFT algo gone wild..

Video replay of trading action in T-Bond Futures casts doubt that this was a "fat-finger" event
A fat-finger trade would send prices straight up, but video replay clearly shows pauses and ample back-and-forth trading.

 

And so was the recent gold smack down...

Via Nanex,

On January 6, 2014 at 10:14:13, Gold futures plummeted $30 on heavy volume. About 4,200 contracts send gold futures prices tumbling $30 and trigger a 10 second trading halt.

Update - 8-Jan-2014

The chart below shows the entire $30 drop in the price of Gold futures that occurred in just under 100 milliseconds (1/10th of a second). When we separated groups of trades by a jump in the exchange sequence number (a technique to determine the size of a larger order) we discovered there were 9 groups where the sum of the trade sizes was exactly 338 contracts! Each group is composed of widely different number of trades (211, 186, 120, 193, 97, 193, 137, 112 and 109 to be precise), yet the sum of the sizes of each group totals exactly 338. We show these 9 groups in the chart below. What's more, there are other trades occurring between these groups of 338 contracts.

What this tells us is that this was not the result of a fat finger, but rather the work of a high frequency trading algorithm that would pause, and (probably) test the market before continuing. A fat finger would not have had such distinguishing features.
 



The next chart shows the cumulative sum of trade sizes for each group of trades where a group is distinguished by a jump in the exchange sequence number. Since exchanges use one sequence number for multiple products, you can usually tell if a group of trades is the result of a larger order by the lack of gaps in the sequence number. That means no other contracts traded during that time.

The time axis is the millisecond time component of the second 10:14:12, so that the value 889 corresponds to 10:14:12.889. The value axis is the cumulative number of contracts. The red diamond indicates the total size of a group when a sequence jump is detected.

Notice there are 9 groups that total exactly 338 contracts. Also note that each of these groups are separated by smaller groups of trades, and 3 of these smaller groups total 61 or 62.



1. February 2014 Gold (GC) Futures



2. February 2014 Gold (GC) Futures



3. February 2014 Gold (GC) Futures



5. March 2014 Silver (SI) Futures



6. SLV ETF trades



7. GLD ETF trades




Compare the next 4 charts which all zoom in on the first 1/10th of a second of activity (10:14:12.880 to 10:14:13) in Gold and Silver ETFs and futures. The futures trade in Chicago, while the ETFs trade in NY. It takes information about 4 to 5 milliseconds to travel between these two locations.

8. February 2014 Gold (GC) Futures - Zooming in on about 1/10th of a second.



9. GLD ETF trades - Zooming in on about 1/10th of a second.
Compare to Chart 8 above - note how the futures activity starts about 5 milliseconds earlier, indicating the move started in Chicago (futures) and not in NY (GLD).



10. March 2014 Silver (SI) Futures - Zooming in on about 1/10th of a second.
Trading didn't start in silver futures until a good 30 milliseconds after gold, which indicates silver was reacting and not part of the same strategy affecting gold.



11. SLV ETF trades - Zooming in on about 1/10th of a second.
Activity in SLV appears 5 milliseconds after activity in GLD. The silver ETF reacts faster to the the gold ETF (both in NY), than the silver futures reacts to gold futures in Chicago.



12. GLD ETF trades - Zooming in on about 1/2 second of time.
Note how trades from EDGX (blue diamonds), Dark Pools (squares) and BOST (light green circles) are reported significantly late.



13. GLD ETF - Direct Edge-X trades and NBBO
It's easier to notice the significant delay in trades reported from Direct Edge-X


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Wed, 01/08/2014 - 16:53 | 4312799 Dr Benway
Dr Benway's picture

It's a funny type of seller that wants as low a price as possible.

Wed, 01/08/2014 - 16:57 | 4312810 Pladizow
Pladizow's picture

CFTC will respond 3 years later with - Iainseenuffin!

Wed, 01/08/2014 - 17:36 | 4312946 Occident Mortal
Occident Mortal's picture

 

When I sell, I try and do it with MINIMUM price impact.

 

 

I should say all good HFT works on the same 4 stroke cycle;

 

1). Buy X with minimum price impact

2). Buy X with maximum price impact

3). Sell X with minimum price impact

4). Sell X with maximum price impact

5). Buy X with minimum price impact

6). Buy X with maximum price impact

7). Sell X with minimum price impact

8). Sell X with maximum price impact

... and on and on forever.

 

There are a lot of good papers out there now on how to maximise and minimise price impact when trading a consolidated order book.

 

 

The problem with HFT is that algo's will be become more and more correlated with one another, they make more money if they fall into lockstep i.e. if they all accumulate together and all maximise price impact together. This is bad as it greatly increases price volatility and by extension, systemic risk.

Wed, 01/08/2014 - 18:24 | 4313165 Odin
Odin's picture

This is Jack's total lack of surprise.

Thu, 01/09/2014 - 00:17 | 4314271 Race Car Driver
Race Car Driver's picture

> This is Jack's total lack of surprise.

I'm beyond any surprises. At this point in the game, it's surreal or nothing. Anything can and will happen once we started swirling the bowl at this speed. Tech brings the future ever shorter distances away - clickity-click - everything is virtual, unprecedented, relative and cartoon-like. The walls of this construct are closing in, but it's more like a looped gif. A complete illusion - magic, perhaps. Just when it looks like they're gonna hit you in the face, they zoom out and start the sequence over again.

Admittedly, I didn't see this coming. This lull where everything stays twisted, perverse and corrupt. This balancing on the knife edge going on so long, never tipping too far to the port nor the starboard ... never falling off ... just whirling along a dull razor's edge at an ever increasing breakneck speed to, where, exactly? And what's really gonna be left of us once we get there?

The litany of problems facing not only our species, but every species on this planet (see: mass animal die-offs), and specifically, man, both natural and man-made, probably hasn't been this long in millennia. It's biblical. From extreme weather, to food, to anti-biotic resistant disease, to GMO, to pollution and toxic environments, to space weather, to earthquakes and volcanoes ... it just goes on and on. And, I don't want to hear that it's always been like this - because it hasn't. And anyone over 40 knows this.

And, Atheism starts to look more and more like a joke of a belief system when one sees the intensity of the worship of evil, perversity and corruption that the fat-cats who run this joint involve themselves in.

What a brave, new world we have here. What a gleaming pile of shit it is ... I gotta wear shades.

Mon, 01/13/2014 - 18:43 | 4328648 MeelionDollerBogus
MeelionDollerBogus's picture

dafuq?
All the worst people doing the worst damage to you right now are avowed non-atheists, be it Catholic/Christian, Jew or Muslim (mostly not Muslim, as a matter of fact).
Atheists don't fuck around with belief systems.

Wed, 01/08/2014 - 18:37 | 4313182 philipat
philipat's picture

The patterns are now so obvious and shameless that there can only be one possible explanation. This time, the 1245 level was technically significant and was defended.

The Fed obviously intends to scare everyone away from Gold. The only hope is that they are running out of physical Gold to cover the games and that they might finish up by destroying the paper markets they so desperately need to manipulate Gold After all, why would any real trader want to take the other side of a BB trade in a market which is so blatantly manipulated?

Wed, 01/08/2014 - 19:47 | 4313353 Ham-bone
Ham-bone's picture

Take a gander at who's bought all that new Treasury supply...not just the Fed, it's foreigners who love our liberty and low yielding bonds...(based on TIC reports)

Global "foreign" holdings of US Treasury....Fed......total outstanding public debt

Dec '00 - .............$1 T  ...................$200B*................................$3.3 T

Dec '07 - ............$2.35 T .................$400B*..............................$5.1 T

Oct '13 - ............$5.65 T  .................$2.3 T**..............................$12 T

* mostly short end bills

** almost entirely long end bonds

Now look @ individual country increases, Jan '07 to '13???:

China $400 B ---> $1.3 T

Japan $600 B ---> $1.2 T

UK $100 B ---> $158 B

Brazil $54 B ---> $246 B

Taiwan $38 B ---> $185 B

Russia $9 B ---> $150 B

Ireland $19 B ---> $111 B

Belgium $13 B ---> $180 B

"carribean banking centers" $68 B ---> $291 B

"oil exporters"  $112 B ---> $237 B

Luxembourg $60 B ---> $133 B

Norway $20 B ---> $78 B

France $10 B ---> $60 B

Singapore $30 B ---> $86 B

Switzerland $34 B ---> $174 B

India $15 B ---> $60 B

Thailand $16 B ---> $45 B

Canada $28 B ---> $58 B

Minor movers...???

Germany $50 B ---> $60 B

Italy $14 B ---> $29 B

Netherlands $15 B ---> $30 B

Turkey $25 B ---> $50 B

None appear to be leaving the treasury table...not sure if they are given money via swaps or promised "something" (gold???) to keep buying or if they are simply so weak they'll do anything to prop up the system.  But nothing data wise sez this is bout to come unhinged.

Point is all these nations and many more are actively supporting the dollar system (regardless their yapping) and seems in all their interest to maintain dollar and help keep a lid on rates, lid on PM's, lid on commodities, and print ad nauseum.  Not surprising gold is going nowhere when every country has it in their best interest to smack it down.

Probably also notable that the PIIGS have been so busy running their own LTRO that they are full to the gills of their own nations debt and do not appear on the list (except the curious exception of Ireland??? wonder where they got all those $'s while also going through their own bailouts???)...

Wed, 01/08/2014 - 19:48 | 4313418 fonzannoon
fonzannoon's picture

Ham-bone thanks for those numbers,

Wed, 01/08/2014 - 20:00 | 4313465 Ham-bone
Ham-bone's picture

I get it that Brazil or China or Japan running trade surpluses and trying to maintain weak currencies see it in their favor to buy Treasury debt....but WTF w/ Belgium?, or Ireland?, or many others...not sure what sort of rational explanation could be given?  Where exactly did the cash come from???

And rationally why would these nations continue to hold these and buy moar as the Fed tapered and US trade deficit is shrinking?  Becoming ever more dollar dependent rather than the independence so many logically would expect of these countries???  Enjoying opposite world every day.

Wed, 01/08/2014 - 20:17 | 4313525 philipat
philipat's picture

How about the same data for the period 2011-2013. Does that still show the same trend?

Wed, 01/08/2014 - 20:36 | 4313622 Ham-bone
Ham-bone's picture

 

 

Jan '08 $2.4 T

'09 $3 T

'10 $3.7 T

'11 $4.4 T

'12 $5.1 T

'13 $5.6 T

Oct '13 $5.65 T

seems main reason for slowdown in '13 was debt ceiling freeze (only issued $650 B in '13) while QE was buying up $540 B...but since debt ceiling raised, Treasury has issued over $600 B since Oct 17 to catch up.  Don't really see any trend changes or anybody selling off.

here's the source data...

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfhhis01.txt

Wed, 01/08/2014 - 20:45 | 4313664 Occident Mortal
Occident Mortal's picture

http://3.bp.blogspot.com/-oNV2fzyJlSg/UNZWs-0BozI/AAAAAAAAAlw/mUFl9Y5Ptg...

China hasn't bought Treasuries for almost 4 years.

Wed, 01/08/2014 - 20:51 | 4313684 Ham-bone
Ham-bone's picture

curious where that info comes from?  Not saying the info I share is correct but it comes from the Treasury TIC report...which like everything else should be viewed skeptically.  Not beyond the pale these are all being held in the US financial entities w/ assignment to foreigner although money for "purchase" came from "other" sources...I'm open to all possibilities because none of this makes sense...

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfhhis01.txt

Thu, 01/09/2014 - 00:02 | 4314230 Soul Glow
Soul Glow's picture

The Kool Aide trick doesn't work unless everybody drinks.

Thu, 01/09/2014 - 00:52 | 4314364 philipat
philipat's picture

@Ham-bone

Your data would mean something if presented BY YEAR over the period you elect. You should include "Others" (That is, The Fed via QE). That data would indicate that the major purchasers have, in recent years, significantly scaled down purchases, offset by significantly increased Fed purchases. (aka unsterilised money printing).

 

Nice try.

Thu, 01/09/2014 - 02:07 | 4314498 Ham-bone
Ham-bone's picture

 as posted above...

 

"foreign" held US Treasury's....Fed......total outstanding public debt

Dec '00 - .............$1 T.........$200B*.......$3.3 T

Dec '07 - ............$2.35 T ....$400B*..........$5.1 T

Oct '13 - ............$5.65 T.....$2.3 T**.......$12 T

* mostly short end bills

** almost entirely long end bonds

Jesus, man, I gave you everything including the source data, go look at the f'ing data...make of it what you will but crystal clear the only purchaser scaling back is the domestic US institutional buyers (pensions, insurers, etc.)...nearly all major foreign nations are at record holdings alongside the Fed.

 

Thu, 01/09/2014 - 05:03 | 4314648 philipat
philipat's picture

Sorry, I should have said BY YEAR BY BUYER, including "Others" (The Fed). Then we can get somewhere. Would it not be correct that China alone has, over the period 2011-2013, reduced its total UST positions from about $ 2.4 Trillioin, to about 1.2 Trillion? Of course, offset by Fed purchases. So what, actually, are you trying to prove here??

Thu, 01/09/2014 - 08:38 | 4314773 TheTruther
TheTruther's picture

Here are the numbers by buyer and month for a twelve month period.

 

MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES (in billions of dollars) HOLDINGS 1/ AT END OF PERIOD Oct Sep Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Country 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2012 2012 2012 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ China, Mainland 1304.5 1293.8 1268.1 1279.3 1275.8 1297.3 1290.7 1270.3 1251.9 1214.2 1220.4 1183.1 1169.9

 

SOURCE:

www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

 

 

 

Mon, 01/13/2014 - 18:40 | 4328643 MeelionDollerBogus
MeelionDollerBogus's picture

ooh, now this is embarassing.

Wed, 01/08/2014 - 20:54 | 4313693 Jack Napier
Jack Napier's picture

Nobody is printing more money than China right now. It's less unprofitable for them to buy our treasuries because they devalue at a slower pace than their own money. They are buying everything; gold, rare earth metals, real estate, heck even clues according to unnamed sources. That doesn't mean it's a good buy, just a prettier pig.

Wed, 01/08/2014 - 19:49 | 4313425 new game
new game's picture

yep, seeing the same thingy. unhinged-huh, they got er all oiled up for smooth squeaky free operation.

dollar kingy for a while moar...enjoy the stability-eh!

Thu, 01/09/2014 - 12:50 | 4315661 TheReplacement
TheReplacement's picture

My name is China.  I want the US to fail but I really want that failure to be spectacular so I will help inflate the bubble to the point of absolutely no return whatsoever.  I will own the US when this is over.

My name is Japan.  I'm just a friggin' idiot.

My name is UK.  I'm gonna ride the fence and jump on the winner's bandwagon at the right time.

My name is the rest of them.  I am manipulated or bullied to oblivious.

Wed, 01/08/2014 - 16:56 | 4312811 Long-John-Silver
Long-John-Silver's picture

Buy Physical Gold for Delivery while it while it's on clearance sale!

Wed, 01/08/2014 - 17:03 | 4312834 Boris Alatovkrap
Boris Alatovkrap's picture

Gold Fatfinger is better than is Cesium 137 fat finger. Recommend not to handle personal stash of unstable heavy metal isotope without thick leather glove.

Wed, 01/08/2014 - 17:03 | 4312838 synergize
synergize's picture

d

Wed, 01/08/2014 - 17:09 | 4312844 nope-1004
nope-1004's picture

Gold must be smashed.  The survival of the USD depends on it.  It won't breach 1250 until revaluation.  Patience, as the government publicly displays their desperation as documented above.

 

Wed, 01/08/2014 - 17:13 | 4312865 mickeyman
mickeyman's picture

Goldthumber

Wed, 01/08/2014 - 17:26 | 4312924 SoilMyselfRotten
SoilMyselfRotten's picture

It wasn't a fat finger, it as a fat fuck, and she just started he new job.

Wed, 01/08/2014 - 17:32 | 4312950 eclectic syncretist
eclectic syncretist's picture

Our taxpayer dollars at work, LOL.

Wed, 01/08/2014 - 18:39 | 4313196 philipat
philipat's picture

Boris,

I recommend shorting the Cesium-137 half life in the paper market?

Wed, 01/08/2014 - 17:25 | 4312919 Tinky
Tinky's picture

"It won't breach 1250 until revaluation."

Care to place a substantial wager on that assertion?

Wed, 01/08/2014 - 18:16 | 4313135 ParkAveFlasher
ParkAveFlasher's picture

WTF does "revaluation" mean?  The Fed still thinks it's thrty bucks per ounce or something to that effect.

Wed, 01/08/2014 - 19:39 | 4313386 KingFiat
KingFiat's picture

The Fed has no clue.

Wed, 01/08/2014 - 22:17 | 4313953 WmMcK
WmMcK's picture

$42.22

Wed, 01/08/2014 - 22:33 | 4313993 akak
akak's picture

Yeah, and Britney Spears is still a virgin.

Wed, 01/08/2014 - 18:34 | 4313193 disabledvet
disabledvet's picture

That's all the silver we irradiated for the Manhattan Project. The gold was not effected....or is affective?

Wed, 01/08/2014 - 19:38 | 4313380 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is sometime read Manhattan Project. Is borrow much silver from treasury but when is done, 1946, is recover and return EVERY OUNCES! Compare Wall Street Project where bank is borrow $3T and is not return single dime.

Wed, 01/08/2014 - 17:11 | 4312859 Jim B
Jim B's picture

There is probably an short in another security or futures contract that reacts to the smash down....  Maybe the HUI index

Wed, 01/08/2014 - 19:06 | 4313277 Againstthelie
Againstthelie's picture

It is even more funny, that it is claimed HFT provides liquidity.

Thu, 01/09/2014 - 00:13 | 4314261 Dane Bramage
Dane Bramage's picture

"yet the sum of the sizes of each group totals exactly 338"...

 

that number keeps coming up for me on ZH of late (at least tangentially).  First in the Winter War article (Finnish Sniper Simo Häyhä), then in the 2013 record firearms sales article... now a HFT algo?  This is too odd.  Imma gonna go clean my Sako TRG42 (.338 Lapua Magnum), jic.  :-)

Wed, 01/08/2014 - 16:53 | 4312801 Event Horizon
Event Horizon's picture

Do you expect me to talk,,,

No. Mr (US) BOND I expect you die......

 

http://www.youtube.com/watch?v=U1TmeBd9338

Wed, 01/08/2014 - 16:56 | 4312802 Cognitive Dissonance
Cognitive Dissonance's picture

Yes. But whose HFT algo gone wild?

<Enquirering minds would like to know.>

Wed, 01/08/2014 - 16:58 | 4312818 y3maxx
y3maxx's picture

""Yes.
But WHOSE HFT algo gone wild?
Enquirering minds would like to know.""

...Answer, Insiders at the NSA of course.

Wed, 01/08/2014 - 17:08 | 4312845 Tall Tom
Tall Tom's picture

My bet it is someone working for Goldman Sachs or JP Morgan Chase.

 

The NSA wants to screw with the Foreign Exchanges. The leave the FED with the member Banks to conduct Domestic Financial Terrorism.

 

Just find out who is the quant, find him, and neutralize him...on a Cross. Crucify him.

Thu, 01/09/2014 - 00:11 | 4314252 Soul Glow
Soul Glow's picture

China could be behind a lot of the manipulation.  Dropping price on the paper market and picking up the physical.

Wed, 01/08/2014 - 17:16 | 4312879 maskone909
maskone909's picture

funny,

i dont think this shit happens in other futures markets, does it?

did wheat, corn, and soybeans have 6 stop logic events in one year?

 

Wed, 01/08/2014 - 17:48 | 4313018 Clint Liquor
Clint Liquor's picture

It's a random event, which is why it is always down and always includes Silver. You know Silver, it's the 'Industrial Metal.

Wed, 01/08/2014 - 18:41 | 4313214 Temporalist
Temporalist's picture

Yes these reoccurring random events are completely typical and expected like AM/PM price performance...just like Jeffery Christian always said.

Wed, 01/08/2014 - 19:39 | 4313384 BigJim
BigJim's picture

 did wheat, corn, and soybeans have 6 stop logic events in one year?

Of course not! That's an honor that can only happen when when some moustachioed pederast has declared them a barbarous relic.

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