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Beware of the day after Thanksgiving

Commentaries & Views

With the holiday of Thanksgiving set to commence tomorrow, more than ever we need to be thankful for what we have, even though we are living in some very difficult times. However, there is another day that us as traders need to be mindful of. Traders need to focus upon the following day after Thanksgiving known as “Black Friday”. Besides being the busiest shopping day of the year, it has also been used as an opportunity to take advantage of the light liquidity and low volume by traders place large orders thereby exaggerating price changes.

Black Friday is an informal name that refers to the Friday immediately following the Thanksgiving holiday in the United States. For decades this day represented the start of the holiday season and Christmas shopping. This celebration of consumer capitalism has been an integral part of the fabric in the United States since it began in 1952.

Traders around the world are acutely aware of the term “Black Monday” which describes different points in time in which the financial markets went into a freefall. However, this is not the only day that’s referred to in this way. To traders “Black Friday” has a much different meaning.

The reason traders have a much more ominous intrinsic meaning is because of the events that occurred in the financial markets on that day. Although the occurrences are rather rare they have been significant and have caught many traders by complete surprise.

This day has been used by savvy or unscrupulous traders to take advantage of the light volume and absence of liquidity to move the market in exaggerated ways.

One of the first examples of this occurred in 1869 and was labeled the “Panic of 1869”. During the Grant administration two high-profile traders, Jay Gould and James Frisk used the absence of liquidity in an attempt to corner the gold market.

These two traders use their connections with President Grant to manipulate the market. However, when President Grant became aware of this action, he ordered the treasury to release a large supply of gold which halted the run and caused prices to drop by 18%. In this instance “Black Friday” fortunes were made and lost and even President Grant’s brother-in-law, Abel Corbin took a substantial financial beating.

Then there is the “Black Friday” gold scandal that occurred a couple of years ago. Beginning on Friday in which the markets in New York are only open for half a day unscrupulous traders took advantage of the absence of the majority of traders creating light liquidity using a trick called spoofing. Spoofing is when one places a large buy order to drive prices higher and simultaneously cancels the order and places a large sell order in the market with the new exaggerated high.

While this is not a normal occurrence, it is something traders should always be aware of. The take away is that “Black Friday” is not just about shopping.

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Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.