Jul. 22, 2015 12:58 AM ET
Seldom has the media been more bearish on gold's prospects, and this will undoubtedly present itself in a further retreat from gold derivatives and gold stocks.
China seems to be being fingered for the latest gold price crash, but should it be? A truly Machiavellian argument might be that the crash was perpetrated by those elements seen as anti-gold, seeking to gain maximum advantage at a time when gold was already under pressure.
And by undertaking some of the activity on the Shanghai markets, seeking to try and apportion the blame to Chinese hedge funds, but also to dampen the appetites of the gold-purchasing Chinese people and institutions who may be seen as standing in the way of a major manipulated gold price downturn.
What is the evidence here? The gold price crash was actually initiated in New York with an enormous futures sale - which then continued in Shanghai, with a reported double whammy of a large 5 tonnes of physical gold being sold into the Shanghai Gold Exchange and another massive futures trade on the Shanghai Futures Exchange. As the U.K.'s Ambrose Evans Pritchard puts it, writing in The Daily Telegraph -
"Spot prices slumped by more than 4 percent to $1,086 an ounce in overnight trading after anonymous funds sold 57 tonnes of gold in Shanghai and New York, choosing the moment of minimum market liquidity in what appears to have been a synchronized strike intended to smash confidence."Indeed, the initial COMEX futures sales, conducted at around 11.29 pm on Sunday night, when activity on the exchanges would be around their lowest, was so great that it forced two 20-second automatic trading halts because of the volumes - virtually unprecedented. The chart below, from Reuters, shows the activity as noted by Bron Suchecki of the Perth Mint in his analysis of what took place. The red-circled initial drop was over a period of precisely 4 seconds! If anyone tells you the gold price can’t be manipulated, here is an almost perfect counter-argument. The two green stars are when the automatic trading halts took place.
(click to enlarge)
China's recent announcement of a far-lower-than-expected increase in its gold reserves after a six-year denial of any increase (although few believe the Chinese figure), coupled with a U.S. Fed interest raising start date now expected to be in September, had already weakened the gold price, and with what seems to have been a concerted anti-gold media campaign in most Western mainstream media, seldom have gold investors been at the end of a more gloomy array of prognostications.
Yet, when sentiment is as low as it is at present, this often represents the turning point. Readers of my articles on Mineweb may recall one of May last year entitled "Gold to fall to $1,100 then skyrocket - silver, platinum in behind." In it, we discussed a prediction by Elliott Wave analyst Peter Goodburn on a scenario as suggested in the title of the article - and indeed, gold has now, as he then suggested, fallen to the $1100 mark, although perhaps a year behind the timing his initial premise may have suggested - but these things are always difficult to time accurately. Now we shall see if gold does indeed recover from this level, and if it does, on the Goodburn projections, the reversal in fortunes could be both rapid and very large indeed. We shall see. Personally, I'm not a great believer in such chart analysis, but I have to recognise that the chartists are often - though not always - right in their predictions.
Goodburn's company, WaveTrack International, has put out a note today reminding clients of the prediction in a note entitled "Gold Bullion - Time to be a Contrarian." We will have to wait and see if this is indeed a good predictor of the gold price, but if it is, we shouldn't have long to wait.
Another possibly bullish point for gold is the IMF's pending announcement - probably in October - of any revision in the make-up of its Special Drawing Rights (SDR), which is broadly regarded as an indicator of global reserve currencies. If, as many expect, the Chinese yuan is to be included, it would have to be at least close to pari passu with the US dollar, which could, over time, lead to a major reduction in the dollar's current role as the world's principal reserve currency and be a major game changer in the dollar's global influence. And with China and the countries seen as already in its zone of influence (like India, Russia, Brazil and South Africa) seen as pro-gold nations, this could well herald a significant change in sentiment for the yellow metal.
So could gold have reached its low point, with the only way now upwards? It's not beyond the bounds of possibility. The recent move to drive the price down noted above has been so blatant that maybe some kind of counter-reaction will be set in place. Perhaps by China, which has already demonstrated its capability of halting a stock market collapse in its tracks in the interests of stabilising its economy. With so many of its citizens holding gold, could it be prepared to do the same here, particularly if it feels the blame for the latest price collapse has unfairly been attributed to its financial elements?
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