Gold News

How Traders Determine the Gold Price

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

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. 

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JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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