Marex Spectron Bullion Thoughts

Once again in inimitable gold market fashion, you could be forgiven for thinking absolutely nothing had happened in the last 24 hours if you had been away!!! But for those of us who were at our desks yesterday, the head scratching continues. I was asked by many participants, journalists and others exactly what on earth happened yesterday morning at one minute past nine and my answer has been as follows for those of you who haven’t read some of the coverage.

The simple truth is I don’t know for sure and probably never will, however one must attempt to put some sense to it, so here goes. To my mind it has to have been an error, whether human or computer driven, because if someone did it deliberately then that person should not only be up in front of an investigatory panel, but also summarily dismissed from their job! The practice of best execution in these markets does not involve entering a massive order and pressing sell or buy! So as I say, I suspect a “fat finger” trade of some sort. The volume involved in the initial trade is unknown and will probably remain that way, but suffice it to say 18k lots traded in the course of that minute. This volume will have been made up of the erroneous deal, but also of stops triggered on the way down, limit buy orders and of course the algo programmes which will have jumped all over the market as the move unfolded. This is the reason that silver also dropped like a stone, these programmes will automatically trade from one market into another if, as in gold and silvers case, there is an intrinsic link. You can all make your own minds up as to whether this is a good thing or not, most of you know my feelings on the matter. However suffice it to say, these moves will only become more violent as and when they happen as the average trader realises that attempting to hold onto a flat price position is a lost cause and liquidity dries up.

As I said at the beginning of Bullion Thoughts, the price is now pretty much back to where it started and this shows the stupidity of these moves. A lot of people will probably have lost a sizeable amount of money on the back of this and going forward, it will not help the cause of the gold market one little bit.

I was also asked the following question. If it was a “fat finger” trade, why did the price not spring back immediately when the error was realised and covered. My answer is this. If there was an error and it was noticed straight away, the worst thing that the unfortunate individual involved could have done is to buy it all back there and then. This would have pushed the price all the way back up and possibly further, resulting in a potential 40 plus dollar loss on a substantial amount of gold. Not a pretty thought. If I had been in this position, and I hope I never am, I would have bought the position back slowly and quietly over the course of the day. The market had been long before the plunge, so there was plenty of “wood” to get through before we managed to get back to where we are this morning.

I think that concludes the story of yesterday!!

Going forward, what do I see for gold? Continue to trade the ranges, I think we will just fluctuate with the usual suspects pointing the way for the short term. Dollar, yields, headlines. Despite yesterday’s silliness , nothing has changed.