At 7:00 AM this morning over 2,500 Gold futures contracts were sold into the market in a time span of a single second. We have seen volumes of this magnitude in Crude Oil, but not Gold.
Many would say that this is manipulation. Yes, we have read Harvey Organ and GATA and Zero Hedge even started following Ferguson’s blog when it first launched, so we are aware of the accusations from bulls and non-bulls alike. The explanations are certainly plausible, but our view of markets has always been agnostic: if ever we do see evidence of manipulation, our only real concern is how to profit from it.
We witnessed it ourselves this morning – hundreds of bids being vacuumed up by someone (or some thing) on the December Gold contract. There were plenty of bids lined up at the all-important $1330 level, with many actually getting filled at or above the ask, but for each increase in bid volume that came, the selling was unleashed even stronger. We were actually thrilled in a way, as we don’t get to see this type of lopsided battle too often, but also saddened because good people who invest in the GLD ETF were getting screwed.
As per yesterday’s post we raised our stop to our entry price of $1320, which turned out to be wise as Gold eventually broke through that level during the 7AM smash, leaving the trade with no losses excluding commission (see chart below).
Overall we are pleased with the trade for a number of reasons:
1) Our algorithm correctly went long based solely on trading patterns and probabilities, and Gold did rise from the entry price.
2) For us to boldly go long when the trend and overall sentiment is bearish speaks to the confidence we have in our computer algorithm.
3) Because of the risk in going against trend, our team had the foresight to limit the trade to a single contract and increase the stop order price to break-even.
4) Although the trade was stopped out at break-even, the max unrealized gain on the run was a respectable $2,800.
5) If the price of Gold was indeed manipulated by some large entity, they must have been reading our blog for ideas on key price levels. For that, we are honored. (ed note: a good portion of our web visits are from gov domains)
So what’s next for Gold? Well, it seems everyone has an opinion and none of them are positive. Today, Fitch warned of a potential downgrade to the miners with a projected Gold target price of $1200/oz (ouch!). The blog posts and tweets we are seeing from traders are also quite dismal. All of this could mean further downside to gold… or, it could mean that a bottom is near. At the very least Gold should correct back up to the $1300-1320 area before deciding on its next move.
For now, our team is monitoring additional trading patterns and some key levels which, if passed, would get us positioned once again to capture the next move in whichever direction Gold decides to take.