Traders Claim Gold's Price Plunge Was Manipulation

Tuesday, 15 Oct 2013 06:49 PM

By Michelle Smith

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Gold's sudden price plunge last Friday was obviously the result of an attempt to manipulate the market, some traders claim.

The metal dropped $25 in two minutes due to a massive 5,000-contract sell order. Since each futures contract represents 100-troy ounces of gold, an undisclosed party attempted to sell approximately $640 million of gold at once, according to CNBC calculations.

And those contracts were 'at the market,' meaning the seller was willing take any price available.

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The trade was so overwhelming that it triggered Stop Logic, a sort of circuit breaker, prompting a 10-second halt.

Some traders insist no legitimate gold sale would ever be conducted this way.

“Anyone with knowledge of the size and volume in the market would absolutely never, ever place a 5,000 sell at market, because you could not estimate the offset price,” iiTrader CEO Rich Ilczyszyn tells CNBC.

Peter Schiff, CEO of Euro Pacific Capital, agrees.

“Someone's obviously trying to move the market lower,” he told CNBC. “A legitimate seller would work a limit over time to get a good price.”

“There is only one conclusion that seems logical regarding Friday's gold trade and the one from a month ago, and that's that they were designed to manipulate prices,” Jim Iuorio tells CNBC.

The other decline Iuorio refers to occurred on Thursday, Sept.12. Again, there was unusually heavy trading that triggered Stop Logic, this time at 2:54 a.m. Gold prices fell $10 within one minute around the 20-second trading halt, Reuters reported.

The occasions “were slightly different,” Iuorio explained. Last month the trade happened when “the market was illiquid in order to get the biggest prices movement,” but Friday's sale was around opening time to ensure “maximum visibility.”

“I think it was a predatory high-frequency trading algo[rithm] that knew it could force a [boatload] of stops under $1,280,” Jeff Kilburg of KKM Financial told CNBC of Friday's price plunge.

Some, however, said foul play wasn't the only possible explanation.

The Wall Street Journal reported the losses resulted from investors shedding their safe-haven positions as the gridlock in Washington seemed to ease. Many investors use gold as hedge when they fear political turmoil, the Journal said, and Friday was the fourth consecutive day of losses for the metal.

George Gero, precious metals strategist at RBC Capital Markets, admits he would never sell gold in the manner seen on Friday. But he says the trade could have been a fund that was repositioning.

“Gold has been a market hedge for some big funds, and of course you've had big ups in the stock market all week,” he told CNBC. “As soon as they felt there would be a compromise in D.C., they felt they had to cash in right away to get into stocks.”

“Our markets functioned properly, and price discovery continued throughout the move,” CME Group spokesperson Damon Leavell told CNBC.

Editor’s Note: 75% of Seniors Make This $152,000 Social Security Mistake (See Easy Fix)

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