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Saturday, October 19, 2013

Acting Man and Gold manipulation:

With gold oscillating around a short term support line at $1,275 and the HUI testing its June low, we are paying close attention to the action. On Tuesday, another attempt to break the support line was undertaken at an unusual time, i.e., during GLOBEX trading overnight, when volumes are small. An analysis of this unusual trading activity (actually, we're not sure if it can really be called 'unusual' anymore) by NANEX can be reviewed in this Zerohedge article. Apparently, 'this time not the entire bid stack was obliterated', so that a 'stop logic' trading halt was avoided.

Given that many commodity funds are suffering large outflows (after all, everybody is '100% sure' the sector is doomed), there could be a certain amount of forced selling by funds in the sector. However, one is still left wondering, why would such sales take place at times when there is very little trading volume and bids are relatively small? Wouldn't a seller be interested in selling at the highest possible price?

This is actually a rhetorical question – it seems rather obvious that the sales are specifically timed so as to ensure that attacks on widely watched trend lines are crowned with success. Such a tactic can make sense for someone shorting the market; put options can be bought beforehand, gold stocks can be sold short beforehand or puts on gold shares can be bought. In that case, selling the futures contract at a slightly lower price can still prove a very profitable tactic overall, especially if the break of support results in follow-through selling by other market participants. Since the market is already weak and has embarked on another short term bear trend, the odds of success are presumably considered high. However, it didn't quite work out that way on Tuesday.


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