Gold and Silver Futures fell as alerted of expected sharp declines in our previous post a day earlier. Gold tumbled the most in three weeks as pessimism on a U.S. budget resolution eroded demand for commodities, ending the session sharply lower. As per reports, sell orders of over 7,500 Gold Futures contracts (worth 100 ounces each) were executed right at the opening of Comex futures trading & in the first 30 seconds of floor trading, 7,700 contracts were traded. There are rumors of an unwinding of a major hedged position also. Volatility also increased with the expiration of gold futures options. The move has occurred just a day after options expiration and ahead of first-notice day for Gold and Silver on Friday, which could mean some unraveling of positions. There was no economic data too at that time to precipitate the move. Optimistic traders had entered fresh buy positions in Gold after the Greece Agreement on a softer deal was announced, expecting a stronger Euro. The Gold Markets had already priced in a Greek bailout. A massive sell off in Gold Futures points squarely on some major market manipulation by a few biggies who would profit from naive traders. Gold is also looked upon as international currency with an added feature of being a safe haven against Inflation or Currency weakness. This makes Gold a straight competitor of the US Dollar.
Is this manipulation by the usual culprits who have a huge vested short interest, (in some mysterious way) linked to strengthening the US Dollar in return? A swift & large decline as seen yesterday would surely be enough to scare potential gold buyers away, though for some time only. A sharp decline in Gold Prices & a rise in Stock markets may seem coincidental but surely have more to do with each other! There are definitely some correlations out there. Central banks and governments certainly have the motive to suppress Gold Prices as they reveal only too clearly the extent to which the purchasing power of fiat currency is being debased. The West sees gold as a means to hide the existence of Inflation while the East sees it as protection from inflation. That means the West is selling gold whilst the East is buying it. A swift large decline is also manipulated to enable collection of the same Commodity at sharply lower prices. A trader would submit selling a unit for a certain price at the then prevalent prices. These prices gradually start slipping & sell orders do not get triggered since prices slipped after submission of order. The trader then modifies his sell price but trades have begun slipping at a faster pace by then. Adding to the pace are pre-defined Sell orders. The trader ends up selling at a much lower price than he had decided upon, falling into the trap of more sharp corrections. Trades generally would tend to be volatile & see large choppy movements in both directions. Any upside spike, though temporary, creates panic in sellers at lower rates. The large volume seller would actually be the first buyers at dips.
Silver Futures tumbled more heavily later after Gold Prices declined sharply, but showed a good recovery from the day’s low by closing time yesterday. Weakness seems to have set in into Gold and Silver trades again today. Gold Market traders and investors are more keenly focused on the negotiations among U.S. lawmakers and President Obama regarding the so-called “fiscal cliff” tax increases and spending cuts that are approaching. The most-traded gold options yesterday were bets on further price drops. Exchange data show 9,573 put options traded, giving owners the right to sell at $1,700 on the Comex by January. That compares with 461 contracts a day earlier. Each Gold contract is for 100 ounces. An estimated 437,259 Gold Futures contracts traded yesterday. In the Middle East there are growing tensions in Egypt, as its president awarded himself major powers last week, and the public did not like it. Protesting in the streets is occurring this week. Any further escalation will impact markets more significantly. The US Fiscal Cliff issue will mostly be soon done with before the year end & that itself points to an upside movement for Gold and Silver in the near future.
Comex Gold Feb declined to $1705.5 & closed at $1716.5 while Silver Slumped to $32.9 but closed at $33.68. MCX Gold Dec slipped sharply from Rs. 32,270 to Rs. 31,768 yesterday & has slipped further to Rs. 31,531 till now. MCX Silver Dec fell to Rs. 61,951 from Rs. 63,613 & is yet holding much above yesterday’s lows.
Base Metals saw no rises further but supports remained largely unaffected by the slump in Precious Metals. Some of the optimism for prices going forward is tied to data that Chinese manufacturing activity is improving. The HSBC manufacturing index turned positive for growth in the manufacturing sector in November, which may signal that Copper demand should improve. China accounts for about 40% of global Copper demand, making its economic environment widely watched by many traders.
ECB announced OMT, and then came the US Fed’s QE3. Eurozone puts ESM in place which was followed by the US Presidential Elections. Then Europe came up with the Greece Bailout. The markets focus will now return to the US Fiscal Cliff & Operation Twist.
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