Gold Flash Crash ‘Winds the Spring’

For those watchers of the gold and silver prices (and we have one of the best live tools around with our gold and silver trend graph on the home page) yesterday was an extraordinary day.  In a matter of minutes we saw gold drop near vertically by 4.2% or around $50 to just $1,086/oz.  That is its lowest point in over 5 years and it took the other PM’s with it.  So what happened?  It looks as though $2.7b or around 5 tonne of gold was dumped onto the market on COMEX in one hit.  That is a fifth of a normal day’s trade in minutes.  It wreaked very much of a similar event in February 2014, one in which just a month ago the orchestrator was prosecuted for "unusually large and atypical trading activity by several of the Firm's customers and caused the mass entry of order messages by Zenfire, which resulted in a disruptive and rapid price movement in the February 2014 Gold Futures market and prompted a Velocity Logic event."  Now past events don’t necessarily prove similar repeats but one only has to ask one’s self… ‘If I wanted to exit a 5t gold contract in the most profitable way, would I dump it on an obscure time in the market with thin liquidity almost guaranteeing a precipitous price drop as I triggered stop loss orders and panic on the way down… or… would I sell gradually into a more liquid time in the market...?’  The answer may be in whether you were a big player and may profit on the short side…

We posted last night a nice succinct, Aussie, balanced article by Greg Canavan from The Daily Reckoning.  In that article, topically given yesterday’s flash crash, he quotes Martin Armstrong as follows:

“At the top, the majority is long and they become the fuel to make any market crash and burn. [shares or property anyone?]

‘At the bottom, the opposite unfolds for everyone will be short. They will pile on looking for $600 gold and will count their profits upon entering the trade. They become the fuel to send the market higher for it always begins with a short-cover rally; people continually try to sell each rally, looking for that new low, just as the people at the top remain convinced that a decline would follow with new highs.”

Yesterday just winds that short covering spring even tighter.