In addition to the rout in the ES, VIX and GC which we pointed out earlier, there were some additional fireworks behind the scenes in today's after hours session. The CBOE Gold Volatility Index, the ^GVZ plunged by the most in over a year, as the index hit an all time low of 15.92 without the underlying making much of a notable move. The most curious aspect of the trade was that the entire dump occured in the AH session. Many were left scratching their heads over what caused this monstrous unwind in long vol positions: was this the unwind of a massive long ES/short GC arb? We don't know, although if rumors that a major fund is planning to stand for delivery of Dec gold turn out to be true, then obviously someone got confirmation today. Keep a close eye out on the GVZ. Should this price level persist on Monday, then the front futures contract will likely surge.
A trader whom we managed to reach late in the day had this to say on this stunning move:
Typical course of action for HFT and other commodity pranksters is to shake out new contract holders. They did it with absolute gusto today, shorting thousand of contracts into thin markets. That didn't work. Gold held up. Now, taking into account that peripheral EU spreads are hitting new highs, hedge funds are getting redemption requests etc, why would you go home long ES and short GC? So what they did is they sold ES into and after the close. After that ES/SPY close they can't run these 'start arb' HFT strategies any more that go long S&P and short Gold as well. Gold's closing time is 1:45pm. They had to cover shorts.
If the short covering in paper persists, perhaps the world won't even need the Krieger/Keiser physical PM campaign to destroy Blythe Masters.
And a bonus observation of the gold curve is the Gold February contract, where in the last minute someone bought 2k contracts, which represents 200,000 ounces or about $272MM worth of gold. Not a bad purchase for the last trade on the slowest day of the year.
As usual, we welcome our readers' perspectives on this largely unexpected move.