William’s reaction startled everyone in the room, and all eyes turned to him!
“William, what’s going on?” the slightly portly elderly man asked immediately.
This man was named Volcker; he was one of William’s partners and a renowned Wall Street tycoon whose influence carried immense weight throughout the financial world.
This time, in order to crush Li Yi and his group in one fell swoop, William had invited Volcker along as well.
William paused briefly, then said with a grim expression, “The Federal Reserve has raised interest rates!”
At those words, the expressions of everyone in the room changed.
“Is the information accurate?”
William nodded and said, “Just moments ago, the Federal Reserve held a press conference. Paul (the Fed Chair) personally announced the rate hike plan. They’ve decided to raise the target range for the federal funds rate by 25 basis points to 0.5%–0.75%, and…”
“And what?”
“And Paul also said there will be at least three more rate hikes by the end of the year!”
“Three rounds?”
Now everyone was on edge; a Fed rate hike was certainly not good news for them.
For those long on gold, the biggest fear is a Fed rate hike. The reason is simple: a Fed rate hike causes gold prices to fall, and sustained rate hikes are nothing short of a disaster for them.
Many people don’t understand the logic behind this and can’t figure out how Fed rate hikes relate to fluctuations in the price of gold. In fact, this is directly related to gold’s financial attributes.
Now that gold has lost its role as currency, many invest in it purely as a hedge against risk—meaning, in the eyes of many, gold is a vital safe-haven asset.
Put simply, when a currency rapidly depreciates or political instability arises, many people invest heavily in and hold gold, causing its price to rise.
However, if the Federal Reserve raises interest rates, it typically leads to a stronger U.S. dollar, as higher interest rates attract more investors to buy the dollar, thereby driving up its exchange rate.
Consequently, gold typically exhibits a negative correlation with the U.S. dollar; thus, when the dollar strengthens, the price of gold often falls.
This is one of the reasons why gold prices often decline before the Federal Reserve raises interest rates.
“William, didn’t you say the White House had no intention of adjusting the federal funds rate?” Volcker said, his face darkening.
“Volcker, you know the White House has no control over the Fed!” William said with a touch of resignation.
Before taking action, they had indeed spoken by phone with the White House’s economic advisor, who had clearly stated that the White House had no intention of adjusting policy for the time being, only mentioning that a series of anti-inflation measures might be introduced after the New Year.
At the time, William had reasoned that their operation would take only a week to achieve its objectives, and any policy adjustments by the White House after the New Year would have no impact on them—which is why they had felt confident enough to move against Li Yi.
But they never expected that while the White House did indeed take no action, the Federal Reserve stepped in, catching them completely off guard.
After a brief silence, Volcker said in a low voice, “So what do we do now? Do we keep going long on the dollar, or do we cut our losses and get out?”
“Pull out!”
“But if we terminate the plan now, we’ll lose at least hundreds of millions of dollars!” Volcker said, his face darkening.
To push the price of gold to its current level of $620, they had already invested $5 billion and used 20x leverage to manipulate the market.
Although they had only utilized one-third of their available funds, they had already purchased over 650,000 gold futures contracts, with an average purchase price of $61,500 per contract—equivalent to $615 per ounce.
Based on their current gold holdings, if the price of gold drops by just $1 per ounce, their losses would amount to $65 million.
If they tried to cut their losses and exit the market now, the losses would be unimaginable.
“We have to get out now. Once the market reacts, it will likely be too late to exit!”
William continued, “But even though we’ll incur losses, they won’t be too significant!”
“Why?”
“Don’t forget why we’re taking on that guy from Hong Kong in the first place. We’re just doing a friend a favor—there’s no reason for us to be the ones footing the bill, right?”
Volcker’s eyes lit up as he thought of the $1 billion that had been transferred over. He immediately said, “Right, we’re just doing this as a favor. No matter the outcome, our friends in Hong Kong will have to cover it!”
Whether it’s “better the friend die than the monk,” these Westerners still know where their loyalties lie.
The people at the British-owned conglomerate back in Hong Kong had no idea they’d already been sold out.
Once it was settled who would bear the losses, William immediately said in a stern voice, “Kum, sell off all our futures contracts right now. List the price at $600 per ounce!” William ordered sternly.
“Yes!”
Hearing William’s order, everyone present felt their hearts bleed.
They had worked so hard to push the price of gold up to $620 per ounce, yet now they had to voluntarily slash prices to save themselves, effectively reverting the price to its pre-opening level.
Even if they managed to sell all their gold futures contracts, they would still lose over $15 per ounce, resulting in a total loss exceeding $1 billion.
That’s a billion dollars!
Not to mention, the news of the Fed’s rate hike had already been made public; by now, the vast majority of people in the industry had likely heard the news.
I doubt there’s a single gold futures trader who doesn’t understand the impact of a Fed rate hike.
As expected, speculators who bought futures contracts at high prices are all waiting to cut their losses and exit the market!
Even though they’ve slashed the price by $20 per ounce, given the current situation, it’s far from certain they’ll be able to exit smoothly.
After all, they hold far too many gold futures contracts—so many that it’s difficult to find buyers willing to take them off their hands.
Sure enough, events unfolded exactly as William had predicted.
As soon as the news of the Fed’s rate hike was announced, the entire gold futures market was thrown into chaos.
Before William and the others could even react, a number of speculators began dumping gold futures contracts at a significant discount.
However, now that everyone is aware of the Fed’s rate hike, even those who haven’t chosen to cut their losses and exit the market dare not easily increase their positions; everyone is watching to see what stance William, this major client, will take.
After all, as long as he didn’t let go, there was still a chance for a turnaround.
However, when William’s team also began dumping their futures contracts, the speculators who had followed their lead went long were left in despair.
Initially, when these speculators saw others going long on gold, they assumed—based on past patterns—that the price would be driven up to a certain level in the short term.
So they decided to jump on the bandwagon and cash in—figuring that as long as they dumped their futures contracts before the market makers dumped their positions and exited, they could make a small profit.
But they never expected that just a few hours into this gold battle, they would face the devastating blow of a Fed rate hike.
Now the market makers have pulled out, and everyone is panicking, rushing to sell their futures contracts at rock-bottom prices.
With so many people dumping contracts—and desperate to liquidate their positions as quickly as possible—prices kept plummeting!
Soon, the price of gold futures on the New York market plummeted below $600 per ounce.
Looking at the broader market, this price formed a perfect parabolic curve compared to the opening level that morning.
However, while the price had a peak during its rise, its decline now seems to have no bottom.
Keep in mind that this was only the Federal Reserve’s first rate hike; a second and third are sure to follow, and gold prices will plummet with each successive hike…
……….