Gold Drops $100 From Asian Session. Who was behind the Move and What Now?
Anyone who happened to be watching $Gold over night during the Asian session might have noticed something odd when it dropped $45 in a matter of 12 minutes from $1875 to $1830. Not only is this an abnormal drop over such a short period of time, it happened during the Asian session which makes it a little stranger.
Generally when an instrument falls really rapidly over such a short period of time (especially highly liquid instruments), it generally means a single institution was involved as highly concerted selling like this is rather unlikely.
With that being said, talk over the chatter from the Asian traders was that the Comex got hit with 4,000 lots and that a large sell order was in place. Generally, taking profits by hitting a certain level creates a negative feedback loop in trading which we discuss in our upcoming book Trading Price Action and Pivot Points.
A negative feedback loop usually creates reduced price action, not exacerbates it. With that being said, we suspect the selling was not for profit but of an 'official' nature. Who would be interested in such a venture?
Well, who just intervened in their currency to stop its appreciation? The SNB. Remember, with them pegging their safe haven currency to a not-so-safe currency (Euro), they've put themselves into an awkward position of having to use their limited reserves to fight off the appreciation. With the CHF being taken off the table (in the short term we believe) as a safe haven instrument, this should naturally increase the probability money would flow into gold.
But herein lies the tricky thing...Gold is not controlled by any one government and hence cannot be debased like currencies. So the only strategic maneuver is to manipulate the price at key moments to psychologically influence people not to trade it.
Thus, expect these short term violent swings and volatility increases but we seriously doubt the overall uptrend is gold is abating anytime soon. Considering its not just a hedge against inflation and a safe haven instrument, but its also a hedge against bad governments and bad economic policies.
This is all happening while Rome is Burning, the Greek Tragedy continues and US politicians playing politics first and putting country last, we suspect the continuing movements into gold will continue for months (maybe years) to come.
We also would like to comment on the long term effects of the SNB's intervention while we are here.
Ultimately, we feel the chances of the SNB stopping the appreciation of the Franc will fail long term. It will work short term (days - months), but after that, but the bottom line is the market is larger than the SNB and so are the economic worries. That will continue to drive money into the CHF after the dust settles.
When this happens, the SNB will be forced to use up a lot of its reserves just to stop the appreciation and eventually they will have to buy the CHF back at a loss and likely a large one.
In terms of alternatives for safe haven currencies, we feel the only other ones on the table (that we like) are the SGD, RNB (tricky to get but workable) NOK and SEK. Besides that, we will continue to favor gold as a safe haven instrument.
Kind Regards,
Chris Capre
2ndSkiesForex.com
Twitter; 2ndSkiesForex
Generally when an instrument falls really rapidly over such a short period of time (especially highly liquid instruments), it generally means a single institution was involved as highly concerted selling like this is rather unlikely.
With that being said, talk over the chatter from the Asian traders was that the Comex got hit with 4,000 lots and that a large sell order was in place. Generally, taking profits by hitting a certain level creates a negative feedback loop in trading which we discuss in our upcoming book Trading Price Action and Pivot Points.
A negative feedback loop usually creates reduced price action, not exacerbates it. With that being said, we suspect the selling was not for profit but of an 'official' nature. Who would be interested in such a venture?
Well, who just intervened in their currency to stop its appreciation? The SNB. Remember, with them pegging their safe haven currency to a not-so-safe currency (Euro), they've put themselves into an awkward position of having to use their limited reserves to fight off the appreciation. With the CHF being taken off the table (in the short term we believe) as a safe haven instrument, this should naturally increase the probability money would flow into gold.
But herein lies the tricky thing...Gold is not controlled by any one government and hence cannot be debased like currencies. So the only strategic maneuver is to manipulate the price at key moments to psychologically influence people not to trade it.
Thus, expect these short term violent swings and volatility increases but we seriously doubt the overall uptrend is gold is abating anytime soon. Considering its not just a hedge against inflation and a safe haven instrument, but its also a hedge against bad governments and bad economic policies.
This is all happening while Rome is Burning, the Greek Tragedy continues and US politicians playing politics first and putting country last, we suspect the continuing movements into gold will continue for months (maybe years) to come.
We also would like to comment on the long term effects of the SNB's intervention while we are here.
Ultimately, we feel the chances of the SNB stopping the appreciation of the Franc will fail long term. It will work short term (days - months), but after that, but the bottom line is the market is larger than the SNB and so are the economic worries. That will continue to drive money into the CHF after the dust settles.
When this happens, the SNB will be forced to use up a lot of its reserves just to stop the appreciation and eventually they will have to buy the CHF back at a loss and likely a large one.
In terms of alternatives for safe haven currencies, we feel the only other ones on the table (that we like) are the SGD, RNB (tricky to get but workable) NOK and SEK. Besides that, we will continue to favor gold as a safe haven instrument.
Kind Regards,
Chris Capre
2ndSkiesForex.com
Twitter; 2ndSkiesForex
-
Comment by sabbir on September 8, 2011 at 9:02am -
in this financial market, all insutrments are falls into hit and run, some are shorter term and some are longer term. once profit is seen, it wlll be cashed and market will crash.
-
Comment by 2ndSkiesForex on September 8, 2011 at 11:54am -
Hello Sabbir,
Sure, what you state is a general truth, but im going to disagree with you on the 'once profit is seen, it will be cashed and market will crash'
I write about this in my upcoming book as there have been immense studies regarding order flow and how profit taking affects price action differently than stops getting hit.
Profit taking generally results in what is called a 'negative feedback loop', which means that it doesn't stimulate massive falls or large sharp movements in price action but quite the opposite.
What we saw here was much larger than some simple profit taking. For gold, which is a highly liquid instrument and traded globally (the GOLD ETF is now larger than the S&P ETF to show you how large it is), for it to drop all of a sudden in such a short period of time is highly suggestive it was done by a single institution and not just some simple profit taking.
Even the price action before it was suggestive of some sort of manipulation as it was highly constrained when it was already volatile before.
It would also be naive to think the SNB would only intervene in the cash markets to stop the appreciation of the franc as a safe haven. what other instruments rise would also convince people to move into a safe haven instrument? The rise in gold. If it continues to rise (and this trader thinks long term it will), then this will communicate to traders and investors to continue looking for safe havens and people will eventually pile back into the CHF as its a far better alternative than the euro (which we think is close to imploding).
People have to have a currency, their money has to go somewhere, and I think long term this fails and the CHF benefits and the SNB will eventually capitulate as the market is larger.
But all in all, it seems highly unlikely this sharp sell-off in 12mins was simple profit taking.
Profit taking from a price action perspective generally looks far different.
Hope this helps.
Chris Capre
2ndskiesforex.com
Comment
© 2013 Created by FXstreet.
You need to be a member of FXstreet.com Forex Social Network to add comments!
Join FXstreet.com Forex Social Network