You Sell 33 Tons, and What Do You Get, 7 Percent Down and Deeper In Debt

On the financial news yesterday was a dramatic drop in Gold prices. The report said that 33 TONS of gold has been sold in 5 minutes in China. At that moment, gold was down 7% on the day. Here’s a graph of that move. (Today is up ‘a tiny’ in rebound).

GLD 7% drop day

GLD 7% drop day

Notice the large spike in selling of GLD in those red volume bars both yesterday and the day before. That is only the GLD ETF and does not include any of the China selling nor any of the commodities exchanges volumes. It does indicate market linkage on price moves. I suspect the 33 tons was margin calls in China, that could not be met, forcing sales of whatever had value and could be sold (and since China has blocked selling of many stocks, some positions can not be unwound to exit them either).

On this chart, USDU is a $US bullish fund while I’ve also plotted the FXE Euro and FXB British Pound fx ETFs. It is interesting to note how gold generally tracks the Euro (i.e. not tracking the general dollar rise over the last year) and how the British Pound has minor “excursions” opposite the $US fairly consistently, while the Euro is generally running opposite the $US but in larger ranges. Similarly, gold often dips on $US rises and rises on $US dips.

It looks to me like folks are heavily using the $US as “risk off” trades against the other currencies and gold.

Also like there may be a lot of € / $ fx trading going on.

In theory, that large down spike in gold, along with a volume up spike, would be a ‘buy point’. It needs MACD to have “blue on top” crossover to confirm, but a “buy if touched” trailing order might also work well, given how volatile gold can be. Also of note that the ‘red line’ in ADX- is inflected (though on that deep a price plunge, just about inevitable for that line to look inflected on the first non-plunge day). So the MACD and DMI indicators are still saying “stay out”, while the “setup” is saying “maybe soon”… Frankly, given the market manipulations in China, and their dodgy numbers (what isn’t fake is not good) and the gross instability in Euro Banking what with Greece being a basket case, Italy frantically weaving their basket, and Germany licking it’s banking chops… I could see a lot more forced selling as possible. Given that the long term trend in gold has been down for a couple of years, I’m just not seeing the reason to go all “risk on” right now. MAYBE a very fast trade, but that’s on a 10 day type chart, not here.

So “interesting times”. Gold under $1000 / ounce. China trying desperately to keep a balloon with holes in it from deflating, and the Euro Zone trying to decide who’s banks to bugger and rob next. USA doing navel gazing as we try to decide which Clown is best for the Bozo In The White House role next.

Me? I’m indulging in the Greek Solution. Folks there are simply taking any currency they can find and spending it on stuff they want. Things in hand, now, future too risky to hope at. “And Hope is not a strategy. -E.M.Smith”

No sense trying to do long term investing in an insane world with thieves running the UN (and maybe Congress and The White House… or are they just “Thieves by proxy” for their ‘donors’?…)

No sense trying to trade much with Goldman Sacks et. al. working 100% against small “investor” interests, with computerized traders getting preferential execution, and with High Frequency Trading determining market movements and not individual people making rational investment decisions.

Sigh. It’s such a pain watching perfectly good markets get buggered by “government control”, special interest manipulation, insider dealing, and abuse of the public.

With that, back to your regularly scheduled life.

I’d likely care more about this all if I had more money at risk, had any gold to speak of, had anything invested in China, or thought any government could ever be anything other than a moral hazard and potential evil… and maybe thought that a financial service company meant any kind of service other than what bulls do on farms…

But those naive attitudes left the building long long ago. Now there isn’t any real “investing” for me, it’s mostly just a game of figuring out what dance the Elephants are doing and finding ways to exploit small spaces they don’t fit. For now, that looks like China Government doing a shakeout of China Investors by changing rules in the middle of play, China “investors” running for cover, big trading houses doing a Butt Cover, and The EU and USA Banks trying to hoover up any loose change left in any non-German non-French banks.

But it can be fun to watch…

Update: Added for P.G. Sliver vs Copper vs Gold vs Platinum

Since P.G. brought it up, here’s that chart:

Sliver vs Platinum, Copper and Gold

Sliver vs Platinum, Copper and Gold

You can see that all are essentially in freefall and have been for a while. Platinum leading, silver and copper close behind, and all three similar. Gold a bit higher.

OTOneH, this isn’t that unusual. Platinum, copper and to medium extent silver are industrial metals. When economics is “not good” they drop. When economic demand is high, they rise faster. Gold has more use in jewelry, as a “store of value” and as an international money hedge (back when gold was dropped to $300 an ounce it was as some European Central Banks were dumping their gold… Spain IIRC… whatever the Central Banks do with gold, do the opposite…) plus gold has use in electronics.

OTOH, if the price one year ago was ‘parity’, Gold has more “down” to go to catch up. Now some of this is not the metals dropping so much as it is the dollar being “strong” (i.e. some idiots want it even though it’s a joke, it’s the best joke in town… likely in China to pay some margin demand or ??…) yet that still leaves gold as “too high”. IFF parity then was valid.

In metals markets, it is often the case that they plunge until high and medium cost producers are shut in. Then they do a small rise and plateau, while waiting for excessive demand in strong economic growth. THEN the metals shoot up, and even marginal producers restart the mines… that stay in production as prices top, roll over, and start to drop in the next economic downturn…

But this time we’ve had all the “pump and blow” we can get globally (Japan, ECB, and The Fed all near or at zero interest rates) and the economies have stayed near stagnant. (IMHO due to too much “regulation”, graft, taxation, and an aging consumer pool / labor pool along with “progressive” angst / stagnation policies). Let’s not forget truly massive debt burdens globally as well. More than can be calculated by anyone, IMHO. Sure parts can be figured (Federal Bonds, for example) but just what IS the global unfunded pension obligation level? Hmmmm?

So not as much demand build at one would expect, and fear rising, so prices falling. Except that gold gets a bit of a bid in ‘fear rising’ that doesn’t hit copper, and touches sliver and platinum only a little.

In short: Economic demand questionable, growth low to absent, “fear” trade modest at best, and some significant part of that fear leaning toward GTFOH (Get…OutaHere) on anything connected to banks and “investment banks”. Add China doing a Big Unwind with the Chinese government doing pot stirring of Epic Proportions and who knows what’s likely to happen. But “rising demand in robust economy” not in the mix.

With that, the end of the Update is reached.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged , , . Bookmark the permalink.

10 Responses to You Sell 33 Tons, and What Do You Get, 7 Percent Down and Deeper In Debt

  1. p.g.sharrow says:

    @EMSmith; I would say you are exactly correct, that, this is the time to watch and keep your powder dry.
    Silver and Platinum indicate to me that gold is still way over priced. I would look to $800 as the real value.
    The great deflation is still underway. Deliberate manipulation of the markets is good for short term gains but always ends badly for someone. A wise man stands aside while bulls and bears fight it out as to which wins this musical chairs game. pg

  2. E.M.Smith says:

    @P.G.:

    I’ve added an update with a chart of Silver vs Copper vs Platinum to illustrate your point.

    FWIW, a quick estimation of the value of gold sold is near 3/4 $Billion…

    33 tons x 2200 lbs / ton = 7260 lbs.

    x 12 Troy ounces / lb = 871200 ounces

    Figure about $1000 / troy ounce, that’s about $871,200,000 dollars.

    Wonder if Greece could have been selling some gold reserves, or Saudi wanting to pay for their soon to start war / nuclear arms race with Iran?

    Maybe it was Iran dumping some reserves to get ready for a shopping spree. China would be a great place for them to do that.

    Just have to wonder who needed to come up with the better part of $Billion in 5 minutes.

  3. p.g.sharrow says:

    Today the talking heads on Fox Business said they thought the sale was necessitated by a need to make margin calls on stock that could not be sold. The stock being held was on a restricted sales list. Wonder what kind of bank would hold that much gold as well as that kind of a stock position.
    Maybe a stock exchange with government reserve bank backing. pg

  4. jdseanjd says:

    My interest in stocks & shares is zero, but what credence do you chaps give to Paul Craig Roberts position that ‘naked short’ sales of paper gold is being used to shore up the US $ value?
    John Doran.

  5. E.M.Smith says:

    @jdseanjd:

    I find “issues” with it. FIrst off, naked shorting anything is very risky and not always legal. If the short moves against you, it is very easy to be wiped out.

    Second, all commodities are very volatile, gold even more so. That’s part of why it really doesn’t make a very good form of money. Too bouncy and you end up needing to change prices on everything else rather often. Trying to use that, to lever the price of something else, is, erh, hard…

    Finally, there’s a lot of $US in the world, and an astounding degree of other things traded against it. There’s not all that much gold in the world, and most of it sits in locked steel holes in the ground. It’s trying to wag an elephant with the hair on it’s tail…

    http://www.numbersleuth.org/worlds-gold/ has the value of all the world’s gold, using a very out of date price of $1600 / oz. at about $8 Trillion. The USA Federal National Debt alone is $18 Trillion. So all the gold in the world at present prices (of about $1000) would be closer to $5.3 Trillion or less than 1/3 of the USA Federal National Debt. Now think about all the rest of the debt (people, companies, States, etc. etc.) Now think of all the EXPENDITURES. Now think of all the financial instruments in existence in dollars. Now real estate… USA Residential ALONE is about $25 Trillion. Now extend that to all the rest of the world and all the other things priced in $US (including all oil trade…).

    All of that is to be moved by a tiny fraction of that $5 Trillion of notional gold value? Remember that most of it is in places like Fort Knox and not subject to trade / availability – even in paper form.

    Frankly, IMHO, it isn’t possible to even start to nudge the $US using gold. Even if you could get the whole lot, and / or issue paper against it. Then good luck trying to find a ‘counter party’ to those trades…

    Trying to short a few $Trillion is going to get you a proctology appointment with financial regulators world wide… and anything less than a few $Trillion isn’t going to move the $US needle.

    Put another way, about $3/4 Billion of gold was moved in 5 minutes, and the $US didn’t even show a ripple. See top chart. Gold has HUGE “gap down” and dollar is more or less steady. Generally rises with the longer gold drop, but on the gap down of gold, is soft of flat-inflecting and then has a tiny drop in the next day or two roughly in sync with the Euro rise and not reacting to gold.

    Were I wanting to prop up the $US, I’d rather short € £ or ¥ against it rather than gold.

  6. E.M.Smith says:

    @P.G.:

    Investment banks.

    http://appleinsider.com/articles/13/12/02/apple-inc-valuation-passes-500-billion-half-the-market-cap-imagined-last-year

    has the “market cap” of Apple Computer alone at $1/2 Billion in 2013. It’s higher now… Then realize that most all stocks are held in “street name” these days. We’re talking a big load.

    http://www.gurufocus.com/stock-market-valuations.php

    As of today, the Total Market Index is at $ 22413.1 billion, which is about 126.6% of the last reported GDP. The US stock market is positioned for an average annualized return of -2%, estimated from the historical valuations of the stock market. This includes the returns from the dividends, currently yielding at 0%.

    As pointed by Warren Buffett, the percentage of total market cap (TMC) relative to the US GNP is “probably the best single measure of where valuations stand at any given moment.”

    So for the USA alone, markets are about $22 Trillion. Almost all that stock sitting in ‘street name’ at less than 1/2 dozen major houses. China and EU have similar sizes (though I don’t know exact $Trillions…)

    In that context “not even a full Billion” isn’t really very large…

  7. Larry Ledwick says:

    well the swiss bank UBS seems to be doing okay.
    http://www.bbc.com/news/business-33671644

  8. Larry Ledwick says:

    This just appeared on Drudge
    http://www.ft.com/intl/cms/s/0/131f3946-391f-11e5-8613-07d16aad2152.html#axzz3hhAsToi2

    Puerto Rico defaulted on some of its debts this weekend after years of battling to stay current on its obligations, signalling the start of a long and contentious restructuring process for the US commonwealth’s $72bn debt pile.

  9. E.M.Smith says:

    @Larry:

    That’s going to be an interesting one.

    I’d thought Greece was going to go first, but looks like P.R.

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