Gold News

Gold Price Plunges 1.8% In 2 Minutes, Triggers CME "Stop Logic" at 3-Month Low

GOLD PRICE losses for the week widened sharply Friday lunchtime in London, with gold's drop below $1300 per ounce suddenly extending a further 1.8% inside two minutes and triggering the CME future exchange's "Stop Logic" for a 10-second pause.
A large sell order began what traders called a "waterfall" drop in the gold price, with the CME's stop-logic system, designed to "prevent excessive price movements", automatically halting trade in gold futures.
The gold price dropped through $1300 on Thursday as news broke of a deal, apparently offered to President Obama by House speaker Boehner, to avoid next week's US debt ceiling deadline forcing a technical default on Washington's debt.
Sinking to a 3-month low of $1263 as the start of Friday's US stockmarket trading drew near, the gold price was set for its lowest end to the week since July 5th.
Silver also fell hard, and again on suddenly heavy CME futures volume, with hitting a 1-week low at $21.04.
"The stop-logic functionality happens across all markets at different times," Bloomberg quoted CME spokesman Damon Leavell after a gold price drop triggered it in September, "and can even happen several times in a day."
"With the US equity markets seemingly giving the prospect of a US debt deal credence by the magnitude of the rally," said Thursday night's closing comment on gold from the derivatives exchange, "a large portion of the [gold futures] marketplace bought into 'hope' of a deal," with the price falling $15 below the $1300 level.
New York stocks closed yesterday more than 2% higher, with Asia and European shares gaining some 1% on average on Friday.
Bondholder insurance on US debt meantime became cheaper, notes Reuters, as credit default swaps on 5-year US notes slipped to 0.3% and 1-year note CDS to 0.6%.
Even with the gold price below $1300, "Physical buying is fairly non existent," said broker Marex Spectron Friday morning.
"[Investment] funds are staying clear and even the most die-hard bulls are having problems coming up with a reason to buy gold, given its totally lacklustre performance as of late."
Thursday saw the SPDR Gold Trust – the world's largest exchange-traded fund by value in late 2011 – shed a further 1.8 tonnes, taking the volume of gold bullion needed to back its shares to a new 57-month low beneath 897 tonnes.
"The path of least resistance appears to be lower for gold," says a note from investment bank HSBC.
"There is a very well defined bearish trend line with five touches," said fellow London market maker Scotia Mocatta overnight, "which comes in at 1322 today." 
New data today meantime showed Japan's money-supply growth ticking higher to 3.7% per year in September.
Consumer prices in Italy and Spain fell last month, official indices said this morning, and were unchanged from August in Germany.
Gold price premiums in India – the world's largest consumer market until anti-import rules hit supply this year – jumped sharply this week, rising 8-fold to $40 per ounce above London benchmarks, according to the All-India Gems & Jewellery Trade Federation.
Bank of Nova Scotia said today it is in talks with both the Gems & Jewellery Trade Federation and India's central bank to try and attract existing household gold holdings into bank deposits, enabling jewelers to meet demand with domestic supplies.
As it is, however, "There is no official gold available," said Sudheesh Nambiath at Thomson Reuters GFMS, noting the start of India's heaviest gold-buying season, culminating with Diwali next month.
"People are not willing to sell their old jewellery" at the current gold price below $1300, he added. "Availability is largely unofficial [ie, black market] metal, which is being sold into market at a lower rate than the prevailing premium."

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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