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February 19, 2010 / Hal (GT)

It’s Friday News. IMF. Rate Hikes. And Gold.

Well here we are. Another week about to be closed out to the annuals of history and filed away somewhere in the cellar. What has changed?

Perhaps the better question I should ask myself is what hasn’t changed?

This week has proven rather interesting to me as far as the gold price goes. Right now ExactPrice is showing the spot price at $1,116.50 an ounce. That is after the IMF announcement of the sale of 191 tonnes of the yellow metal and after the announced rate hike. Both incidents send gold into an immediate sell off. And I mean immediate. The timing of the announcements were interesting. After Comex and US Market close in both cases and in both cases come morning the markets reaction was to shake the news off and climbing back up.

One thing that pops out to me and makes me scratch my head is that immediate sell off. Who did that? I’ve a suspicion that it was computer trading bots or algorithms reacting to the news. In other words, no human involvement at all. On twitter this morn I was glad to see a similar thought from vzen:

Look at the spot #gold daily charts for the last 3 days. Computer trading against computer day after day. Is anybody out there? Any human?

Which reminds me of an article on FT that discusses this matter:

Markets: Ghosts in the machine
By Jeremy Grant and Michael Mackenzie

Algorithms have become a common feature of trading, not only in shares but in derivatives such as options and futures. Essentially software programs, they decide when, how and where to trade certain financial instruments without the need for any human intervention. But in the Credit Suisse case the NYSE found that the incoming messages referred to orders that, although previously generated by the algorithm, were never actually sent “due to an unforeseen programming issue”.

It was a close call for the NYSE. Asked if the exchange could have been shut down as it was bombarded with false trades, an exchange official says: “If you had multiplied this many times you’d have had a problem on your hands.”

Here is a list of other news items and blog entries around the net that I think are well worth a read.

Market Commentary From Monty Guild – Jim Sinclair’s Mineset.

Real, Uglier American Unemployment

If you don’t read anything else, read this from zero hedge: IMF Gold Sales v. the Alchemy of Gold Futures – What’s the Impact on Gold Prices?

The recently announced IMF sale of 191.3 tonnes of their gold reserves, though it caused an immediate sharp knee-jerk reaction in gold futures markets, will have a negligible effect on the long-term price of gold.  Here’s why.

In December, 2009 the commercial bullion banks that serve as agents for the leading Western Central Banks were net short 303,791 contracts of gold. Each COMEX gold futures contract represents 100 troy ounces, so the Commercials were net short 30,379,100 troy ounces of gold. With the average price of gold $1,134.72 per troy ounce in December 2009, this net short commercial position represented $34.47 billion worth of gold.  There are 32,150.74533 troy ounces in one metric tonne. So 30,379,100 troy ounces/ 32,150.74533 troy ounces = 944.90 metric tonnes of gold. Since gold contracts are supposed to be good for physical delivery, the commercial bullion banks that were short nearly 38% of annual world production of gold this past December should have had 944.90 physical metric tonnes of gold in their vaults to back up their short position at that time. In reality, this situation never exists.

Have a great weekend everyone. I just glanced again at gold and it’s now $1,118.90. Up since I started this entry. Well, lookie there. Just popped to $1,119.10.  It will be interesting to watch and see where it ends the week at.

Until next time.


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