Price Swings and the Digital Age

Steve Fiscor

Last month, we wrote and committed resources to the proposed mining charter in South Africa. In the time between E&MJ being printed, mailed and readers receiving the magazine, sanity prevailed. South Africa reversed course and the news story had run its cycle. A former E&MJ editor would occasionally cite the expression that “today’s news is tomorrow’s birdcage liner,” and I immediately thought of him when the news broke. We are happy for the South African miners and we apologize for the inconvenience. People receive input instantaneously and can react upon it just as quick. It has reshaped how news is delivered and it’s having a similar impact on traders as well as algo trades. Precious metals traders have been discussing the recent downward “spikes” in late June and the first half of July. For example, on June 26, Ross Norman, CEO, Sharps Pixley, reported that at “9:00 [London, GMT+1] gold was rocked by a 56-[metric- ton] (1.8 million ounce) gold sale — but it remains a mystery who ... and why.”

London is arguably, the global capital for gold trading and prices for the yellow metal immediately dropped $20/ounce (oz) from $1,255/oz to $1,235/oz when this news broke. “This bears the hallmarks of a fat finger ‘muppet’ — a trade of 18,149 oz 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 got confused between ounces and lots,” Norman wrote. Sharps Pixley is a London-based gold bullion broker.

The price of gold has recovered and now stands at $1,268/oz. Was this a mistake or something more? Suspicion and conspiracy theories run deep among precious metals traders. Norman admitted that the sale could have been made by a trader squaring away a large position or a central bank, both of which would have likely taken place at a different times. It could have been someone opening a short position, in which case it had the desired effect in catching the market by surprise, but Norman stuck with his muppet theory.

Eventually, the CPM Group weighed in on the discussion. They pointed out that the discussions only followed the downward spikes and ignored similar upward spikes in the prices, which is typical of conversations run by conspiracy theorists who only look at downward moves. They said that these moves were not really flash crashes. The moves, they explained, appeared to reflect the effects of a combination of program trading, stop-loss order practices and an influx of institutional money into these markets.

Keith Weiner, CEO, Monetary Metals, has a similar view with a more complex explanation. On Thursday, July 6, in the late afternoon [GMT+9], the price of silver moved lower dramatically from $16/oz to $14.40/oz and less before recovering to around $15.80/oz. He analyzed the trades that took place millisecond by millisecond during that silver “crash.” “At this time scale, we can see there are upticks,” Weiner said. “Yes, even in a crash like this one, there are upticks.”

While traders agree that regulations drive down liquidity for markets, no one knows for sure if these price moves were triggered by stop-loss orders or something more nefarious. For mining companies, which have a longer-term vision of pricing and commitment to the market, a $0.20/oz price fluctuation for silver in a day and its roundtrip might seem to be a tempest in a teapot, but it also might be something worth keeping an eye on. Enjoy this edition.

Steve Fiscor, Publisher & Editor-in-Chief, E&MJ

As featured in Womp 2017 Vol 08 -