news.goldseek.com / By David Chapman / 13 June 2014
In the previous week’s Chart of the Week, (Is there a Bear Case for Gold? – June 5, 2014) I mused as to whether there was the potential for another drop for gold in the works. The thought that gold could once again put in another scary plunge was based on the premise that there was the eerie similarity between the pattern that is currently forming and the pattern that formed from September 2011 until April 2013. On April 12, 2013, some 400-500 tonnes of gold were offered at the open in thin market conditions on the COMEX the futures exchange that trades gold. The result was a $200 meltdown for gold. The gold sale had a value of roughly $23 billion.
In Q1 2013, the notional amount of gold derivatives outstanding for US banks jumped about $20 billion to $148 billion from Q4 2012 as reported by the Office of the Comptroller of the Currency (OCC). During Q2 the notional amount of gold derivatives outstanding fell by almost $27 billion. The short sale was made in the early part of Q2 so it is possible that these positions were all covered by the time Q2 ended on June 30, 2014.
Since then the notional amount of gold derivatives outstanding has fallen another $26 billion to Q4 2013. Some 90% of all derivatives are held by only four banks in the US – JP Morgan Chase, Bank of America, Goldman Sachs and Citibank. Other large bank holding companies in the US include Morgan Stanley and HSBC.
One of the constant themes I hear is that the gold market is manipulated and that technicals are largely useless in a manipulated market. Given the recent investigation into the London Gold Fix there is no longer any doubt about manipulation in the gold market. Previous investigations have led to some large financial institutions paying large fines for manipulation related to LIBOR, currency price fixing and energy price fixing. The five banks involved in the London Gold Fix are facing lawsuits and Barclays PLC paid some £26 million (US$44 million) in fines by the British regulator. Traders have been let go on the banks dealing desks and Deutsche Bank has pulled out of the London Gold Fix and is selling its seat on the LME. Other banks involved in the London Gold Fix besides Barclays are Canada’s Bank of Nova Scotia, HSBC Holdings PLC and Societe Generale SA.