Gold price pares gains as talk of market manipulation intensifies

Contrary to conventional wisdom in the gold market, the metal has not capitalized on its status as a safe haven in times of trouble despite the ongoing political crisis in Washington.

No deal between Republicans and Democrats to end the US government shutdown or to lift the country’s debt ceiling were reached over the weekend even as the October 17 deadline to avoid a default draws closer.

Talk in the gold market has shifted to allegations of market manipulation or at the very least abnormal trading behaviour after a massive sell order halted trade in the $240 billion a day market.

Shortly after the opening of trade on Friday the gold price plunged more than $30 an ounce to an almost three-month low of $1,259.60 an ounce.

Chicago’s CME Group, which operates Comex, said at around 8:42am Eastern time a 10-second stoppage occurred after a volatility safety mechanism was triggered, apparently after a 2m ounce sell order was executed.

The exchange said the market functioned as intended and that all trades will stand.

FT.com quotes David Govett, head of precious metals at bullion broker Marex Spectron as saying the attempt to offload around 5,000 December futures in one go on Friday appeared suspicious:

“These moves are becoming more and more prevalent and to my mind have to either be the work of someone attempting to manipulate the market or someone who really shouldn’t be trusted with the sums of money they are throwing around

“There are ways of entering and exiting a market so that minimum is caused and whoever is entering these orders has no intention of doing that,” he added.

Other market observers have also voiced concerns about irregular trading in paper gold which has exploded in volumes in recent years.

Veteran trader and Wall Street legend, Art Cashin, who is also director of floor operations at UBS told King World News about the “strange happenings in gold”:

So, if that happens once it could be an accident of technology, or it could be a simple error. But when it happens 5 times over a period of months, it does raise questions. Is it being done purposefully? Is somebody trying to send a message? Is somebody trying to influence the market?

A month ago a similar slam down of the gold price occurred in the gold market when a block of 2,000 futures contracts also halted trading.

Friday’s violent swing pales in comparison to gold’s $200 an ounce drop over the space of two trading sessions in April.

According to some traders that decline was triggered by a short seller pushing through two trades – one of 3.4m ounces and then a 10m ounce sell order – within a 30 minute period which panicked the market and set up a sustained period of selling of the metal.

The paper market for gold has grown exponentially in recent year with daily trading volumes now reaching $240 billion a day, much more than the S&P 500 and Dow Jones stock markets combined.