Technical Analysis

Gold bulls forced into hiding as GC continues to plunge

  • Why I see gold moving lower and how we can take positions if that does occur.
  • An incredibly interesting story about a gold trader Nick Leeson.

Looking at the pullback again

Last time we looked at GC, we were waiting for a potential long entry using a bullish reversal pattern on a lower time frame. As far as I have looked, there has been no long signal, and GC continues to fall.

Gold futures are now testing the 50% fib level, and there may be some support here, but the chart looks bearish. I would not be looking for a long just yet unless we see a few days of consolidation at current prices.

There is the potential for GC to move even lower toward the 0.382 level at $1794.2, and long trades there could be very attractive. At the moment, that is the main target I am aiming for. There is no point in chasing or creating a trade out of thin air. The probabilities lie in a further move down and looking for longs over there.

GC daily chart
GC Daily Chart

Story of Nicholas Leeson

One true story about a gold trader is that of Nicholas Leeson, a former derivatives trader for the British investment bank, Barings Bank. In the early 1990s, Leeson was sent to Singapore to manage the bank’s operations on the Singapore International Monetary Exchange (SIMEX).

Leeson was tasked with making profitable trades for the bank, but instead, he began taking huge speculative positions in the Nikkei 225 index, which he hoped would yield large profits for the bank. However, his trades began to suffer significant losses, and rather than reporting the losses to the bank’s management, he hid them in a secret account, which he named “88888.”

To cover up the mounting losses, Leeson began making trades in the futures market on behalf of Barings Bank’s clients, but these trades only deepened the losses. By 1995, the losses had exceeded $1.3 billion, which was more than twice the bank’s available trading capital.

Eventually, the bank’s management discovered the losses, and Leeson was arrested in Germany and extradited to Singapore, where he was tried and sentenced to six and a half years in prison. Barings Bank was declared bankrupt and was subsequently acquired by the Dutch bank, ING.

The story of Nicholas Leeson’s rogue trading is one of the most infamous in financial history and highlights the importance of risk management and oversight in the financial industry.