Yesterday’s big gold price drop. Is there more to come?

Followers of the gold market will be well aware of the big drop yesterday in the USD gold price after days trading mostly in and around the $1,270s and up.  In the event the fall might not prove to have been as bad as some had feared would be unleashed by the big money on the gold futures markets but if it gives the gold bears heart we could be due for more of the same ratcheting the gold price down – but gold has been pretty resilient recently and it may well recover, perhaps up until the eve of the next FOMC meeting.

The trigger was the release of the minutes of last week’s FOMC meeting which suggested that a June rate rise was not, as many had speculated, as unlikely as the market had been suggesting but, as is usual with U.S. Fed statements messages were mixed.  We do feel that the Fed has painted itself into such a corner that at least one rate rise this year is probably inevitable, and it may yet talk itself into two more, otherwise it loses yet more credibility in terms of its ability to forecast and control progress, if any, in the U.S. economy.

From the bull camp here’s Ed Steer’s viewpoint in an excerpt from a special edition of his daily newsletter which he produced while he was otherwise taking a week off.  Ed’s newsletter is on a paid subscription so I hope he will forgive me for broadcasting this excerpt.  If you need further information or wish to consider subscribing, the link is here: Ed Steer Gold and Silver Newsletter.

Ed’s take on the gold move with supporting charts was as follows:

‘You really don’t need me to tell you what happened yesterday.  The Fed minutes were released at 2:00 p.m. EDT-‘da boyz’ spun their algos-and the rest, as the say, is history.

In gold, they got the price down to almost its 50-day moving average, with the low tick of the day coming at 3:40 p.m. in the after-hours market-and it recovered a handful of dollars from there into the 5:00 p.m. Wednesday close.

The high and low tick were recorded by the CME Group as $1,283.50 and $1,256.00 in the June contract.

Gold finished the Wednesday session in New York at $1,258.00 spot, down $20.80 from Tuesday’s close.  Net volume was very heavy at a hair over 185,000 contracts-and roll-over activity was nothing special.

Here’s the 5-minute gold chart courtesy of Brad Robertson once again.  There was decent volume between the COMEX open and the London p.m. gold fix, which is 6:40 to 8:10 a.m. Denver time on the chart below.  But the big volume came at noon MST, 2 p.m. EST, when JPMorgan et alappeared and unleashed their HFT traders on the Fed news.  Volume didn’t drop off to background until a bit over two hours later.

The vertical gray line is midnight in New York, noon the following day in Hong Kong-and don’t forget to add two hours for EDT.’  Click on the chart to enlarge it.

You may or may not not agree with Ed’s opinions but there certainly was a huge kick-up in volumes at the precise time of the biggest price fall concurrent with the release of the FOMC minutes brought on by high frequency trading on the markets.  Now whether this is just normal on such data as released at that time, or is indeed the big money using this as a lever to drive the gold price downwards we will probably never know for sure, but high frequency trades certainly have an undue influence on what is mostly a fairly orderly market.

As noted above though the big drop in the gold price appears to have been capped at around $1,255 suggesting decent resistance to a fall below this level although this morning this level is looking a little shaky.  We could be in for an interesting few days.

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