How Traders Determine the Gold Price

[The Machine]

Traders may go long or short, but they don't fight the Gold Price trend...

TRADERS are solely profit-oriented. Their task is to push movements either way to maximize profits. It doesn't matter if they are dealing in gold, pork bellies, soya or silver. What counts is the extent of price movements, writes Julian Phillips of GoldForecaster.

They are made powerful in that they represent moment-to-moment buyers and sellers. If you counted the number of transactions they make to those of a long-term investor, the latter become irrelevant to the day-to-day price movements. Traders call the shots on a daily basis.

But traders are not crusaders for a cause. They are, at best, fickle and uninterested in the fundamentals. Fundamentals count to them, simply to describe the tide, in the picture Technical Analysis paints. If today prompts them to 'short' the market, they will. And tomorrow the picture tells them to go 'long' of the market, they will. They are not investors. But they do cloud the picture.

Today, they may react to the European elections and the price of the Euro against the Dollar, and this also changes on a day-to-day basis. Tomorrow the next important piece of news will affect them differently.

But as the long-term buyers take up all the available gold on the market, the technical picture reflects this and will tell traders the way to go.

Comex officials tell us that only 5% of its trades lead to the physical delivery of gold. An example of the impact traders can have, the Comex recorded an unusually large transaction of 7,500 Gold Futures [750,000 ounces or 23.24 tonnes] during one minute of trading at 8:31 a.m., New York time this last week. The sale took out blocks of bids as large as 84 contracts [8,400 ounces] in one fell swoop and cut prices down to $1648.80 an ounce [from $1663.00]. The overall transaction was worth more than $1.24 billion. This smelt like one trader seeing a chance at a quiet time in gold's day to try to squash the Gold Price. In the past when the Gold Price was far lower, at $300 an ounce, traders drove the Gold Price up to $390, then down to $326 afterwards.

Today, this would be far more difficult due to the increasing demand from central banks [in particular on a daily basis] and to emerging world tidal demand narrowing supply and demand, considerably. The present danger to a trader is that he will be caught 'short' and be forced to pay more than he sold for as he covers his position. The huge trade recorded on Comex appears to have been successful [if it is now closed?], because central banks will simply wait for the appearance of an offer of physical gold from the market before buying on the dip. Traders have to reinforce their Comex trades by precipitating a fall in the physical market price or they may not create a fall in the price. If they can't then the price may turn against them.

That's why we saw heavy, sloppy sales at the quiet time of gold's day. That was the ideal time to impose downward pressures. But the next day we have seen repeated bounces in the Gold Prices as the stock sold was bought by equally large, if not larger investors at a busier time of the day

If Indian buyers see the lower price as an opportunity at say $1600 and Chinese byers follow through, they too have the ability to squeeze the traders and force them to cover their 'short' positions and to go 'long'. This will turn the price back up rapidly. It has the capacity to create an explosive rise in the Gold Price.

A look at the Gold Price this decade, rising from $275 to a peak over $1900 shows what is possible over time. Traders have enjoyed the ups and downs of the Gold Price all that time, but never fought the trend. We expect this pattern to continue.

[20MillionDinar]

Traders may go long or short, but they don't fight the Gold Price trend...

TRADERS are solely profit-oriented. Their task is to push movements either way to maximize profits. It doesn't matter if they are dealing in gold, pork bellies, soya or silver. What counts is the extent of price movements, writes Julian Phillips of GoldForecaster.

They are made powerful in that they represent moment-to-moment buyers and sellers. If you counted the number of transactions they make to those of a long-term investor, the latter become irrelevant to the day-to-day price movements. Traders call the shots on a daily basis.

But traders are not crusaders for a cause. They are, at best, fickle and uninterested in the fundamentals. Fundamentals count to them, simply to describe the tide, in the picture Technical Analysis paints. If today prompts them to 'short' the market, they will. And tomorrow the picture tells them to go 'long' of the market, they will. They are not investors. But they do cloud the picture.

Today, they may react to the European elections and the price of the Euro against the Dollar, and this also changes on a day-to-day basis. Tomorrow the next important piece of news will affect them differently.

But as the long-term buyers take up all the available gold on the market, the technical picture reflects this and will tell traders the way to go.

Comex officials tell us that only 5% of its trades lead to the physical delivery of gold. An example of the impact traders can have, the Comex recorded an unusually large transaction of 7,500 Gold Futures [750,000 ounces or 23.24 tonnes] during one minute of trading at 8:31 a.m., New York time this last week. The sale took out blocks of bids as large as 84 contracts [8,400 ounces] in one fell swoop and cut prices down to $1648.80 an ounce [from $1663.00]. The overall transaction was worth more than $1.24 billion. This smelt like one trader seeing a chance at a quiet time in gold's day to try to squash the Gold Price. In the past when the Gold Price was far lower, at $300 an ounce, traders drove the Gold Price up to $390, then down to $326 afterwards.

Today, this would be far more difficult due to the increasing demand from central banks [in particular on a daily basis] and to emerging world tidal demand narrowing supply and demand, considerably. The present danger to a trader is that he will be caught 'short' and be forced to pay more than he sold for as he covers his position. The huge trade recorded on Comex appears to have been successful [if it is now closed?], because central banks will simply wait for the appearance of an offer of physical gold from the market before buying on the dip. Traders have to reinforce their Comex trades by precipitating a fall in the physical market price or they may not create a fall in the price. If they can't then the price may turn against them.

That's why we saw heavy, sloppy sales at the quiet time of gold's day. That was the ideal time to impose downward pressures. But the next day we have seen repeated bounces in the Gold Prices as the stock sold was bought by equally large, if not larger investors at a busier time of the day

If Indian buyers see the lower price as an opportunity at say $1600 and Chinese byers follow through, they too have the ability to squeeze the traders and force them to cover their 'short' positions and to go 'long'. This will turn the price back up rapidly. It has the capacity to create an explosive rise in the Gold Price.

A look at the Gold Price this decade, rising from $275 to a peak over $1900 shows what is possible over time. Traders have enjoyed the ups and downs of the Gold Price all that time, but never fought the trend. We expect this pattern to continue.

Hey TM!

Thanks for the post. I just wanted to throw in my 2 cents. You're right when you say that Traders' main goals are to basically create movements and go with the trend. The Greece situation played a HUGE roll in everything that has happened recently.

However, the markets were also overbought: the DOW, Gold, most of the commodity currencies (AUD, NZD, CAD), and they were all in need of a correction. This is good for markets in the long term. Gold went up for over 8 straight years! LOL, that is a bull run if I have ever seen one.

So with the markets being overbought coupled with the Greece situation, these past 2 weeks were only normal. Remember when I posted the Weekly gold chart a few weeks back? I saw this down trend coming due to the technicals. The dollar strengthened to almost a 2 year high during the past 2 weeks as well, which was only normal.! http://www.bloomberg.com/quote/DXY:IND

BUT, today, we just witnessed the start of a reversal for Gold, as well as most other currency pairs because they can't go down forever. I expect this reversal / correction to last another few weeks, or at least until the Greek elections in another month. Then, we will more than likely see more downside for Gold and the Euro. Gold touched $1,526 and then bounced off, I expect us to go back up to around $1,600 or so. When greece has their elections, I expect a free fall for the Euro down to about 1.20 or so, which will also take gold down to newer lows! I probably won't buy any gold / silver until Gold hits around $1,200 - $1,300. Hopefully this happens by the end of summer, then it will be time to go PM shopping!

Isn't it strange how Gold drops when major problems occur? You would think it would be the opposite... But, the US Dollar IS the safe haven currency and people flock to it when problems arise. The Yen is also a safe haven currency during uncertain times.

My Projections: We will see a minor correction towards the upside during the next few weeks, then when Greece has their elections, the EURO will drop to low 1.20's or so, and so will Gold along with other major currency pairs. This down trend will last a few months, creating strength for the US dollar. Then, towards the end of summer (September - November) we will see commodities start to come back up.

Positives: Cheaper Gas, Cheaper Stocks for the long term investors, and Cheaper Gold for long term investors

[pattyangel]

Gentlemen, The Machine and 20MillionDinar your insights to the Gold/Silver is very informative and I have to say entertaining to the mind. I love coming to this side of the board, picking up tib bits of vital information. I have so much to learn and I feel my time is limited due to the economy situation.

Positives: Cheaper Gas, Cheaper Stocks for the long term investors, and Cheaper Gold for long term investors

Keeping my eye on the gold price. Dropping in price is a plus.