Market Report: $1.4bn Gold Take-Down

by Alasdair Macleod, Gold Seek:

Precious metal prices traded lower this week in lacklustre trading, until Wednesday, when someone sold 10,000 gold contracts on Comex.

Before that event, the silver price had been hit hard, though Open Interest remained stubbornly high. Gold fell $14 to $1324.5 over the week by early European trade this morning, and silver from $19.30 to $18.63.

It is possible that the 10,000 gold contract sale and the price action in gold and silver was connected with option expirations on Thursday. In silver, the target would have been to make the $19 calls expire worthless, while in gold the target was probably as low as $1300.

In gold’s case, there were some 13,000 September call options with striking prices between $1300 and $1340. Last Friday, the gold price closed at $1342, so there is no doubt there was a huge incentive for the grantors to manage prices lower to a sub-$1300 target. As it was, they only managed to get the price down to $1320, so for the professional shorts the cost on about 8,000 option contracts was saved. Silver was a similar story, but the numbers were far smaller. Nonetheless, the price has fallen over $1.30 over the last ten days trading.

However, there was another interesting development last night. An exceptionally high 20,966 Comex December contracts were exchanged for physical (EFP). EFP transactions happen all the time, but this was a jumbo deal. We don’t know the reason, which is most probably technical, but it could be linked to the sale of 10,000 contracts the day before. Most exchanges would automatically initiate an enquiry to ensure that there is no market rigging involved in a $2.8bn deal. Dream on.

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