2012-11-29 10:50:17Roosevelt

Some Speculation on Today's 24-tonne COMEX Sale

Gold sold off sharply in early New York trading, apparently triggered by aggressive selling in COMEX futures. Reuters noted that trades equal to 35% of daily volume were executed in about a minute on COMEX and stops were "torn up." With no apparent reason for the sell-off, rumors of a 'fat finger' trade and speculative algorithm driven shorting abound. There is also talk that an error occurred in rolling to the next period.


London-based bullion dealer Sharps-Pixley reported: "Gold saw a massive 24 tonne sell order (7,800 contracts) at 08:20 a.m. New York time - bang on the opening of the world's largest gold exchange - which [caused] a fall of 2.25% in the market price."


One well-placed industry expert I spoke to was initially leaning toward the "fat finger" explanation, but acknowledged that story becomes less likely with the passage of time. Such trades tend to get challenged pretty quickly. His second best guess was that this was follow-through from yesterday's options activity. He noted particularly large put volume yesterday, suggesting that today's sell in the futures market would be a very visible (intimidating?) way to push those puts into the money.


Our own Michael Kosares speculated this morning that this big sell could be an offset to a corresponding (or pending) buy in the physical market. After all, it is in fact quite common for major physical buyers to hedge their exposure in the paper market. This begs the question though; where does one come up with 24-tonnes of physical gold these days?


Bottom-line: More than three hours after the fact, nobody seems to have a definitive answer as to who or why someone was selling so conspicuously on COMEX.


In the spot market, losses mounted with the violation of Fibonacci/chart support at 1723.13/1720.50 as sell stops were triggered. More than 50% of the Nov rally from 1672.69 to1754.31 has already been retraced, but the yellow metal is holding above $1700 thus far. The market is already more than $10 off the intraday low of 1706.37.


Gold had been under modest pressure earlier in the week amid waning risk appetite after fiscal cliff negotiations failed to yield any progress after the long Thanksgiving holiday weekend. It seems that all the warm-fuzzy post-election talk of compromise was just that...talk. It looks increasingly like Congress will take us on another hair-raising ride to the cliff's edge, and the market clearly doesn't like it. Erskin Bowles, a co-chair of the President's deficit commission, is even more pessimistic, believing that the year-end deadline won't be met. "I believe the probability is we are going over the cliff," Bowles said this morning.