Fed Concerned About Suspicious Gold Trading After FOMC Meeting

Today’s AM fix was USD 1,320.25, EUR 977.67 and GBP 825.36 per ounce.
Yesterday’s AM fix was USD 1,316.50, EUR 976.05 and GBP 823.43 per ounce

Gold rose $1.40 or 0.11% yesterday, closing at $1,322.50/oz. Silver climbed $0.09 or 0.42%, closing at $21.65. At 3:13 EDT, Platinum inched up $7.89 or 0.6% to $1,423.49/oz, while palladium rose $6.75 or 0.9% to $718.75/oz. 

Gold’s support is at $1,300/oz and a fall below that level could see gold test the next level of support  at the $1,180/oz to $1,200/oz mark. Resistance is at $1,400/oz to $1,434/oz level and a breach of resistance should see gold quickly test the $1,500/oz level (see chart below).

Physical demand in Asia is down from the huge levels seen in recent months but remains robust  heading into the peak wedding and festival season in India and China. Bargain hunting was seen again yesterday with prices close to $1,300/oz.

Gold in USD with Resistance and Support - 1 Year  (Bloomberg)

Demand in China remains robust as seen in premiums for gold of $15 per ounce on the Shanghai Gold Exchange (SGE) overnight. 

India's gold jewellery exports climbed in August from the previous month on improving U.S. demand before the Christmas season. Indian exporters face tight supplies of gold due to the central banks desperate attempts to tackle the country's rising trade deficit and prevent a currency crisis. 

The Federal Reserve is “concerned about suspiciously heavy trading of gold futures” after its meeting last week, that may have been triggered by a premature release of market sensitive information according to Associated Press.

In a statement, the central bank said that news organizations that receive embargoed information from the Fed agree to withhold information until the time set for its release. The Fed statement said, “We will be conducting follow-up conversations with news organizations to ensure our procedures are completely understood.”

After the meeting, the Fed said it would hold off on slowing its $85 billion a month in purchases of U.S. government debt and mortgage debt. That surprised markets and led to a sharp rise in gold and silver prices.

Gold in USD - 10 Day (Bloomberg)

Two hours prior to the Federal Open Market Committee (FOMC) release, gold was trading below $1,300/oz but started to gradually tick higher prior to surging higher on heavy volume, minutes prior to the release of the FOMC statement. 

FX markets, stock, bond and commodity markets did not see similar large moves.

Trading in financial markets is now dominated by automated computer systems, which make trades in tiny fractions of a second that can lead to millions of dollars in profit. Receiving the data early - even by a few milliseconds - can give an unfair advantage to favoured hedge funds or banks.

The security of sensitive, market-moving information is becoming an increasing concern due to strong suspicions of recent leaks. 

Possible leaks of government data have already led the Labor Department to tighten its procedures for distributing information early to reporters, including the closely monitored monthly employment report.

The Labor Department also revoked early access for some media organizations.

The Fed also operates media lock-ups when its policymaking committee meets eight times a year, although the procedures are less strict than at the Labor and the Commerce Departments.

Fed officials work on an honor system. The Fed's policy statement is distributed 10 minutes early to reporters at their desks in the press room at Treasury. Internet and phone lines are not disconnected, and cellphones are not collected. The Fed has similar procedures for a separate lockup held at its headquarters.

Separately, precious metals whistleblower, Andrew Maguire in an interview with Max Keiser described his facilitation of statements given last year to the U.S. Commodity Futures Trading Commission (CFTC) by JP Morgan Chase employees confirming that their company manipulates the precious metal markets. 

Maguire cites the sudden dumping of huge amounts of futures contracts at illiquid moments in the gold market as powerful evidence that the U.S. government is intervening to protect the dollar and suppress gold and silver. 

Such action is by definition manipulative, Maguire says, and easily could be tracked down by market regulators if they wanted to do so. Maguire says CFTC Commissioner Bart Chilton has told him that if the commission fails to act in its five-year investigation of silver market manipulation by the end of this month, Chilton himself will say something about it. 

Maguire cites GATA Secretary and Treasurer, Chris Powell, and his increasingly apt phrase “there are no markets anymore, just interventions.”

Maguire say that peculiar recent trading activity strongly suggests that certain banks were trading on inside information and knew there would be no taper, hence the surge in prices prior to the release the FOMC minutes after their meeting last week. 

Marc Faber has again told CNBC how he favours gold and silver over many other assets. Recently he emphasised the importance of owning actual gold bullion, revealing how he “owns physical gold.” 

Faber reiterated his favourable view on gold, saying the precious metal was relatively inexpensive.

"In the long-run, we have a huge bull-market in gold. Between 1999 and 2011, we peaked at $1,921 and went down to $1,180 and are now slightly above $1,300," he said.

"I think gold and especially gold equities are relatively inexpensive and the S&P is relatively high," he added.

If you are considering investing in gold or indeed if you are looking to increase your allocation, take this opportunity to download our Comprehensive Guide to Investing In Gold. This complimentary eBook is a must have for anyone thinking of investing in gold.