Eric Fry

Someone is selling in size…Someone is buying in size. That’s what makes markets, as the saying goes. But that’s also what makes market manipulations, according to the bloggers at Zero Hedge.

The seller in this case is very large and very sloppy, perhaps intentionally so. The buyer is also very large, but very patient and methodical. Trapped between these two powerful opposing market participants we find a “range-bound” gold market. Let’s take a closer peek at the curious goings-on…

Last Monday, a large early-morning sell order in the gold market whacked the price of the precious metal by about $15 in a matter of seconds.

“The CME Group Inc.’s Comex division recorded an unusually large transaction of 7,500 gold futures during one minute of trading at 8:31 a.m.,” The Wall Street Journal reported. “The sale took out blocks of bids as large as 84 contracts in one fell swoop and cut prices down to $1,648.80 a troy ounce [from $1,663.00]. The overall transaction was worth more than $1.24 billion.

“Gold traders buzzed with speculation that the transaction was an input error — a so-called ‘fat finger’ trade,” the Journal continued. “‘Or a Gold Finger as it might be known in the bullion market,’ traders at Citi joked in a note to clients.

“Still, not everyone agreed Monday’s slip in gold was caused by a keystroke error,” said the Journal. “Chuck Retzky, director of futures sales for Mizuho Securities USA, said that silver prices suffered a similar leg down at the same time as gold, tumbling 35 cents to $30.805 a troy ounce, but other markets like Treasurys, currencies and stocks were unperturbed. ‘To do it both in gold and silver tells me that it wasn’t a trade done in error,’ Retzky said.”

A second trader chimed in, “No one who has the account size and the money to trade thousands of gold contracts would do it in one transaction, that’s just stupid.”

Or maybe this “stupidity” was intentional, as the folks at ZeroHedge suspect. Again yesterday, a large 3,000-plus lot gold sell order hit the Comex overnight trading system around 1:30 AM, Chicago time — causing the gold price to quickly fall more than $5. “Volume that size is unusual for that time of the day on the COMEX,” ZeroHedge remarks.

A few hours later, shortly after the Comex opened the gold pits for the regular daytime trading, a couple of very large sell orders knocked $10 off the gold price in a matter of minutes.

These large, sloppy sell orders are no accident, ZeroHedge insists. They are simply some of the most flagrant examples of what could be market manipulation by Western central banks. ZeroHedge does not point fingers at any particular “fat finger,” but it does wonder aloud if the Bank for International Settlements (BIS) may be involved.

“[A few weeks ago],” says ZeroHedge, “somewhat tongue-in-cheekly, we presented the ‘people bringing you currency manipulation on a daily basis,’ or in other words, the BIS execution team for Europe’s central banks, which is most directly engaged in FX and precious metals ‘interventions’ when needed.

“The execution chain we presented was headed by one Richard Austin Jones, head of central bank services at BIS, Basel, yet more importantly the actual trader at the bottom of the totem pole was a Mikaël Charozé, whose various tasks included the ‘management of the liquidity for big amounts’ primarily interventions and portfolio diversification, as well as ‘holding and managing proprietary positions on all currencies including gold.’

“We posted this observation on April 5,” reports ZeroHedge. “Funny then that just 10 days later, one would never know that Mikaël no longer counts ‘holding and managing proprietary positions on all currencies including gold’ among his duties as well as task of ‘management of liquidity for big amounts including interventions.’ [I.e. the BIS Website removed all of this language from Mikaël’s job description]. In fact his entire profile, since our little humorous exposés, appears to have been rather completely altered. Inquiring minds would love to know: why?”

Why, indeed?

Many gold-market participants have long-suspected that Western central banks (and other agencies of currency debasement) conspire to suppress the gold price. According to this conspiracy theory, the central banks periodically pound on the gold price in order to prop up the value of the paper currencies they print.

But despite the anecdotal evidence supporting the conspiracy theory, no one has ever caught one of the conspirators in the act. Like Sasquatch, the conspirators leave lots of great, big footprints, but no one ever manages to trap them in their caves.

So maybe there are no conspirators, just lots of really stupid and sloppy gold sellers.

Meanwhile, the buy side of the gold market is much less mysterious.

“Earlier this month it was revealed that Hong Kong gold imports into China totaled nearly 40 tonnes in the month of February, representing a 13-fold increase over the same month last year.” Sprott Asset Management observes in its April letter. “China has now imported 436 tonnes of gold through Hong Kong over the past 8 months, compared with only 57 tonnes over the same 8 month-period a year earlier (July 2010-February 2011).”

China's Monthly Gold Imports from Hong Kong

In other words, on the other side of every sloppy gold sale by a BIS trader (or whomever) you are likely to find an eager Chinese buyer. The recent surge in Chinese buying represents a whopping 25% increase in total global investment demand for gold.

“There isn’t a physical market on earth that can withstand that type of demand increase without higher prices over the long run,” Sprott declares, “and the gold market is no different. There are no sellers of physical gold that we know of who can satiate that scale of new demand, and global gold mine supply has been virtually flat for over the last 10 years…Where is the gold going to come from? We ask because we don’t actually know.”

So there you have it…The invisible “fat fingers” are selling gold. The very visible Chinese are buying it. Place your bets!

Eric Fry
for The Daily Reckoning

Eric Fry

Eric J. Fry, Agora Financial's Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research, institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.

  • Larry bernard

    Keep in mind: China follows Marxist conflict theory. It views all wars as conflicts over resources. And it views the stability of their economy (and not having inner social strife which has dominated china much of its history ) comes from “letting the spice flow”

    so China isn’t necessarily buying gold to be money. Their are a lot of industrial uses for gold and if their is a large war or a large economic collapse in china they have bought gold, oil, and other raw materials while they have money. So if all goes higgilty piggilty they have the raw materials to fuel their economy

  • m.kennedy@glidle.com

    When does the Silver Liberation Army spring into action?

  • showme

    Could China be driving down the price to create its own bargains?

  • http://www.cnp-keythai.com Laptop Logo

    I always believed Chinese to be very intelligent, and they proved it. I also think that Gold price will hike further. Interesting for investors?

  • Just Wondering

    The old kingdom wants to cover up the weakness of their old world currency and power. The new kingdom has a long term plan to promote its currency as the new world currency. Gold will offer confidence, they need a lot.

    The old kingdom is subsidising the new kingdom in this effort which will unseat themselves. The plan has just a few years to go.

    How sweet is that?

  • http://N/A John Butterworth

    HOW GOLD DEALERS MAKE MONEY – Great presentation by Gold Expert Tarek Saab.

    http://www.youtube.com/watch?feature=player_detailpage&list=UUwo1lEiVFySDG_V6Fab86_g&v=6K8JXjE57Ec

  • curious

    can it be fake bulk sales along with fake buys to fix market prices

  • http://sonyxplodamp.com Sony Xplod Amp

    Gold is maxed out. It will fall soon.

  • Unufegan Paul

    Let anyone who knows a prospective buyer of gold give my contacts to him / her. I have large quantity for sale. I can be reached on +819039372029 or email paulfemi2003@yahoo.com

  • Mary Beth Mcmasters

    Is ozsgold.com a good investment even though it is supposed to be guaranteed by Oswald Pelaez or is it just another scam? It sound like it is to good to be true.

    thanks,Mary Beth

  • http://www.avanzagold.com Avanza Gold

    Dear all,

    we have several tons of gold in Thailand and looking to find purchasers. Minimum purchase quantity 1200 kg. This is our e-mail: info@avanzagold.com

  • http://princeadjei84@yahoo.com prince adjei

    am mr adjei the c.e.o of nana osei mining copmany ltd we have gold to sell we need buys to buy it .thank u can cell +233242718421

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