Sunday, 3 June 2012

Very odd price crashes for gold stocks on Friday on London Stock Exchange

Prices drop in final trades
Despite Friday's massive rises for precious metals the shares of a number of gold and silver miners trading on the London Stock Exchange saw their closing prices drop sharply.

Fresnillo (FRES) shares closed down more than 4% after a one-off trade. Randgold Resources (RRS) and African Barrick Gold (ABG) also saw their prices plunge from daily highs. 

This may be normal after a volatile day but it still looks odd. These kinds of moves  have been noted on this blog before (here and here) showing that the share price of Fresnillo tends to jump at the end of trading days. 

LSE trading data shows that different kinds of deals were responsible for the various price moves seen here.

After prices gained all day the falls came at the end
 The move in ABG was triggered by a "negotiated trade"

 The Randgold Resources fall was the result of deal titled "OTC trade immediate publication"

The Fresnillo falls were caused by another negotiated trade.

These price moves don't affect me but if they happened in the middle of the day they could have done if I was buying or selling products, like funds, that use share prices to value their units. On Friday, when I looked at my portfolio, my physical gold ETF shares were showing a gain for the first time in ages but the BlackRock Gold and General fund was still down 18%.

This didn't surprise me as the fund finds its price once a day at midday which is also when the units are bought and sold.  So on Friday the price being offered was set at midday before gold miners across the world saw big gains on the back of the US jobs report.

So I checked a portfolio of companies from BlackRock's top ten investments (a Google Finance tool that I haven't mastered) to see how much the fund might have gained but there was no gain. It was level, despite companies like Randgold Resources making gains of up to 9% in other markets. 

These across-the-board price drops look so uniform that I have forgiven myself for thinking that they me be orchestrated. They probably aren't but I will be asking the LSE and whether it can be sure that the price drops are not linked to other products that might use the pricing on the LSE.

In other words if this odd event happened at midday when BlackRock evaluates its fund, how would it affect an investor like me? 

And would it be illegal to put in a huge BlackRock Gold and General fund buy order and then sell small amounts of Fresnillo, Randgold (or any other miner the fund holds)  shares at knock down prices at midday. How difficult would it be for someone to do it?


  1. It's just after-market trading isn't it? In other words, largish trades being placed when there are almost no buyers or sellers (as the main market is closed). The effect is to give bizarre closing prices, sometimes many percent to the up- or down-side.

    This happens all the time, with all sorts of equities, commodities, and currencies. It's true that such trades can give you a vague idea of what might happen at the next open, but generally they don't.

    Most brokerage accounts won't let the small (i.e. 'retail') trader play in the pre- or after-markets. Which is probably just as well. One observer (I forget who, I'm afraid) noted that to do so would be like 'driving blindfolded'. Those big funds and institutions that do play this game are doing so out of necessity: they really need to dump or acquire the investment in order to hedge other trades, get fresh liquidity, or to meet margin calls in other markets.

    Of course, such moves can't happen in the open markets because trading is thick (rather than thin), and any mad bid prices will be quickly snapped up by HFTs.

    One notable exception: I've found the US pre-market in GDX to be a very reliable indicator of how things are going to go during the trading day. I presume this is because the smart money is taking advantage of their near sole rights to trade in thin markets to front-foot others after the overnight news has already decided whether that day will be 'risk on' or 'risk off'.

  2. And if that explanation doesn't make you feel more relaxed, then take a closer look at Randgold. This is a great example, as it is floated on both the LSE (as RRS) and the NASDAQ (as GOLD). Check out the Google Finance pages for both.

    London closed after the NASDAQ opened. Did the dramatic plunge in RRS after hours in London have the slightest effect on GOLD on the NASDAQ? Quite the contrary... Randgold went on to rise 10%.

    Randgold's a great stock to trade because of this. The closing price of GOLD in the US on Friday(on the NASDAQ) is +10%. But RRS had not risen by 10% in the UK (on the LSE) on the same day. Imagine there were no bank holiday on Monday: one of two things would have to happen. (1) RRS will rise to close the gap with GOLD (otherwise there'll be an arbitrage opportunity), in which case you should buy at the open, as RRS has to 'catch up' with GOLD. Or (2) RRS will stay static or fall, in which case you'll know you need to sell GOLD at the open. Simples.

    RRS has the other advantage of not having any stamp duty, as it's registered in Jersey. So it needs to rise 0.5% 'less' than almost anything else you buy on the LSE.

    Plus, in my strictly personal opinion, Randgold could be one of the hottest longs around this year. But that's a story for another day.

  3. I agree that there's probably nothing in this. It just seems that if someone wanted to manipulate prices to achieve some effect in another market - ie an OTC product or a fund that is priced off the London Stock Exchange - then couldn't this 'quirk' be an opportunity to do so? And if people bother manipulating global commodities markets (I think Bart Chilton said that this was probably going on with the likely aim of affecting products in other markets) then why not on a less grand scale? Although these deals happen often does that mean they are normal and are done with no motive beyond those of unsophisticated people like me?

    I'm not saying this has happened and yes, in this case the deals look pretty large (to me), one of about £500,000, one of £150,000 and one of £60,000. But the price moves have happened to all the precious metals miners I looked at and I see that this can happen at any time of the day (one 'negotiated' trade at 15.42 for RRS had the same effect but, like you said, it was a moment that passed).

    In ETFs those moments also happen in the middle of trading and they don't always pass so fast - ( looking at PHGP there were two trades at a much lower price and they weren't huge deals.)

    These price movements are (and probably should be) dismissed but if it suited someone to do it on purpose who would bother finding out? No doubt I should be focusing on other things! And considering I own more gold stocks than I ever intended to (via BlackRock which you probably don't approve of ) I should be happy.

  4. I'm not sure my sense of reality was strong yesterday! Jubilee, rain and watching Prometheus (not a good film) may have inspired some paranoid conspiracy thinking....

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