Blog : China's Golden Flash Crash
by Peter Leeds on July 21st, 2015
We have a short term trading opportunity - this company is solid, growing fast, and so highly oversold that their relative strength index (RSI) is near 10! Anything lower than 30 means too much selling has gone on, and the lower the number, the higher the potential pop.
We also are deciding between 2 companies for this week's penny stock pick - they are both clear winners, but final analysis has yet to indicate which will be today's selection.
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China Destroys Gold Prices
China has announced their "official" gold holdings, for the first time since 2009. Unfortunately, the Nation is still playing games.
The reported 1,658 tonnes represents an increase of only 60% from six years ago. This figure was far lower than many expected, and certainly not an amount of buying which would justify China's frequent use of third-party buyers. They have been believed to make their trades through various buyers in an attempt to mask their trades.
In the latest manipulation on the Chinese market, a massive amount of bullion was dumped in a 2 minute window. As this was done during a period of low liquidity, the selling drove gold prices down nearly 4% within 120 seconds.
It is in the interest of anyone buying gold to have the price be low. Gold prices will come back, but the current weakness represents a great accumulation opportunity for the People's Bank of China.
There is a bigger issue, however. Worldwide, many traders have gold holdings on paper, which they bought with leverage (borrowed money). As the precious metal price falls, the value of the investment decreases, which then triggers many investors to cover their "debts."
Brokers typically force their clients to sell other assets (stocks, bonds) to raise enough capital to cover the loans.
If you own 1,000 shares of IBM on leverage...
...and that borrowed money is partially based on the value of your assets (like stocks, bonds, gold, etc...)...
...and the total value of the underlying investments fall...
...your broker may require you to sell assets to keep your loan manageable.
A sudden and significant 4% gold price decline is certainly enough to initiate margin calls (forced asset sales). The final result may be that the gold price manipulation will actually cause market-wide sales of all sorts of assets. There will be market weakness, but that forced selling means great opportunities and valuations for buyers!
Kobane is the Front Line
We've told you about Kobane since last October. This is, and will continue to be, the flash point and central pivot between ISIS, Turkey, Kurdish forces, and American air strikes. This Syrian city will also potentially pull many others into the war zone, but mainly indirectly, such as Iran.
Kobane very unfortunately made the news once more, with a suicide blast which stole the lives nearly 30 people. While the Kurds have claimed they re-captured the town, ISIS continues to put pressure, as they have done for months.
Now ISIS have retaken several villages to the south of Kobane, and continue to threaten the besieged city. A car bomb also killed 2 in Kobane yesterday.
As well, just prior to the major explosion, a massive blast killed dozens of people in Turkey, very close to the border with Kobane.
ISIS will not stop trying to capture Kobane. The city has become a symbol. The city is also a strategically located border town between Syria and Turkey, and would allow for ease of passage for fighters, weapons, resources, and more.
The chaos will continue to spread, and if more nations become involved, it eventually could affect Saudi Arabia - that is when it will spike oil prices significantly.
The risk premium, combined with supply disruptions, would lift prices for the commodity.
If Kobane falls, it will be a defeat for America's aerial bombardment strategy. As we explained, airborne campaigns have yet to show any historical victory on the ground.
If you want to benefit from global events, martket forces, and up-and-coming penny stocks, just click here to get started!
As of January 2017 we no longer publish the blog and it has been removed from the webiste menu.
You are reading this old blog entry because we still like to reference it. :-)
You are reading this old blog entry because we still like to reference it. :-)
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