Gold steady ahead of Yellen speech, following yesterday’s shock drop

Today’s influences on the gold price look to come from a soft dollar, and Federal Reserve (Fed) chair Janet Yellen’s speech in Portugal. Yellen will likely re-affirm the Fed’s outlook on the US economy, which is currently positive, and hint at raising rates once more this year, according to OCBC analyst Barnabas Gan, in Reuters.

Spot gold rose by 0.1% to $1,244.96 by 04:28 this morning, up from a near six-week low of $1,236.46 in the previous session. U.S. gold futures for August delivery fell 0.1% to $1,245.40 per ounce.  

Whilst more hikes were originally expected this year, US aspresident Donald Trump has had difficulty pushing through his economic plan of tax cuts, deregulation and fiscal stimulus. A potentially inflationary or high-growth environment could certainly warrant further rate hikes, but, for now, the Fed sees the economy doing just about well enough to ease off the monetary gas as it looks to trim its massive balance sheet of $4.5 trillion.

Yesterday’s gold drop can be explained by a massive 56 tonne sell-off, according to Sharps Pixley’s Ross Norman. The trade shot up to 1.8 million ounces of gold in under a minute, beating all other major political shocks that have happened such as Brexit and Trump.

The key clue is that it wasn’t just that the value of the trades went up, but the volume too. Around 18,149 lots were traded on Comex in a minute, before dropping down back to 2,334, suggesting somebody decided to sell all the packaged gold contracts they owned on a whim, or that it was a simple mistake.

In a press release Norman suggested it “bears the hallmarks of a fat finger ‘muppet’ – a trade of 18,149 ounces would be a very typical trade, but a trade of 18,149 lots of a futures contract (which is 100 times bigger) would not be… it leaves us wondering if a junior had got confused between “ounces” and “lots”.

Norman also favours the theory that it was a mistake because of the timing. If a trade was squaring away a large position it would make sense to do it later in the day when the US market has opened and there was more liquidity in the market.

Said lack of liquidity was also why the shock caused such a price drop instead of being absorbed by the market. Chintan Karnani, chief market analyst at Insignia Consultants, was quoted in Marketwatch as saying some Asian markets are closed for the Muslim holiday marking the end of Ramadan. “Asian demand is not there today,” he said. “Had key Asian markets been open, gold prices would not have crashed.”

Photo: Janet Yellen at the University of Michigan earlier this year. Credit: Gerald R. Ford School of Public Policy, University of Michigan, licensed under CC BY-ND 2.0

Link to this article: : http://www.goldmadesimplenews.com/gold/gold-steady-ahead-of-yellen-speech-following-yesterdays-shock-drop-13244/

Posted by on Jun 27 2017. Filed under Gold News, Markets. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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