Gold Prices Plunge as Shanghai and New York Dump Gold

Witawat (Ed) Wijaranakula, Ph.D.
Tue Jul 21, 2015

The CME spot price of gold tumbled 4.62% on Monday to an intraday low of U.S. $1,080 per ounce, or February 2010 resistance levels, following an overnight two-minute flash crash on the Shanghai Gold Exchange (SGE) and COMEX New York Mercantile Exchange (NYMEX). An estimated 33 tonnes of gold, worth about U.S. $1.3 billion, was traded during the two-minute period, Reuters said. 

According to ANZ Bank analyst Victor Thianpiriya, the August 15 COMEX gold contract saw a spike of 7,600 contracts, equivalent to about 21.5 tonnes of gold, in the same two-minute period. The lack of liquidity in the early Asian trading hours and holiday closure in the Japanese markets, were blamed for triggering the flash crash.

The price of gold has been running out of stream since mid-May as it was unable to break out the U.S. $1,224 per ounce resistance level, after a big surge on May 13 when gold broke through the key resistance of U.S. $1,200 per ounce. The gold sell-off could be attributed directly to a surge in the U.S. Treasury yields as the correlation between the two of them is high. 

A lack of demand may be part of the falling gold price as the global gold jewelry demand for the first-quarter of 2015 declined 3% to 600.8 tons, according to the World Gold Councilís quarterly report.

As of July 14, there are 143,190 short positions for gold futures [COMEX:GC], by non-commercial dealers, compared to about 191,014 long positions, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. Hedge funds and large speculators seemed to turn bearish in the previous week, as the net short positions have increased 27,821 contracts, since June 16, where gold contracts are traded in units of 100 troy ounces. 

From our technical viewpoint, gold broke down the lower trendline support of the symmetrical triangle on June 25, at U.S. $1,176 per ounce. We suggested then, that gold could turn very bearish if the price breaks down through the U.S. $1,142 per ounce level. The projected gold price is U.S. $1,072 per ounce, for the event of a symmetrical triangle breakdown.

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