The recent high volatility continued on Monday morning as the Gold Price hit an eleven-week low of $1537 per ounce during Asian trading – a 7.2% drop from Friday's close – after Gold Futures exchanges in Shanghai and New York announced margin hikes for leveraged traders.
The Silver Price fell to $26.16 – its lowest level since last November – before rallying 14% in two hours.
Global stock markets rallied sharply along with broad commodities.
"When the cinema is on fire, the crowd will only calm down when the stampede finishes," commented one Hong Kong bullion dealer during Monday's Asian session.
"Retail punters are scared," adds one Singapore-based gold dealer quoted by news agency Reuters.
"There is a big Dollar buying frenzy now, which is dragging everything down and people have to liquidate just like 2008."
In October 2008 – a month after Lehman Brothers collapsed – gold fell more than 12% in a week, based on PM London Fix prices, while stock markets also saw heavy selling.
This morning's spot market fall to $1537 represents a 15.2% drop from the start of trading last week.
Based on PM London Fix prices, there has been no week when the Gold Price fell more than that amount since February 1983.
"Global currency performance is hugely dependent on volatility," says Steve Barrow, research analyst at Standard Bank in London, warning that "it looks as if volatility could still have a lot further to rise".
On the currency markets today, Dollar strength saw the Euro fall below $1.34 – down from $1.42 at the start of the month. The US Dollar index – which measures the Dollar's strength against a basket of other major currencies – has gained 5.5% since the start of September.
"When volatility is low," says Barrow, "higher-yielding currencies in the developed and developing world gain against the lower-yielding funding currencies, which have typically been the Yen, Dollar and Swiss Franc. But when volatility is high, things reverse and usually very sharply."
Over in New York last week, there was a 9.3% drop in the number of noncommercial – so-called speculative – long positions held by Gold Futures and options traders on the Comex exchange, according to data published Friday by the Commodity Futures Trading Commission.
The data cover the week ended Tuesday 20 September, so do not cover the rapid Gold Price moves of more recent days.
Following its sharp drop in Monday's Asian session, the Gold Price surged $100 to hit $1637 by lunchtime in London today – though this is still around 15% down on last month's all-time intraday high.
Following market close on Friday CME group – which runs the New York Comex, the world's largest Gold Futures exchange – announced it will raise margins on gold contracts by 21%, with the margin on silver going up by 15.6%. On Monday the Shanghai Gold Exchange also announced it will be raising its margins for gold and silver.
The margin hikes have "exacerbated the selloff, forcing widespread liquidation of positions," says a note from Mitsui Precious Metals in London.
CME last raised margins on 24 August – a day which saw the spot market Gold Price drop by more than 8%.
"Dramatic price moves make for dangerous trading conditions," warns Mitsui.
"[However], the current low prices may present a good opportunity to Buy Gold. Once the current market panic subsides, it is difficult to see how the macro picture can be anything but bullish for gold."
"What we are seeing now is the illustration of a global phenomenon, the global crisis of sovereign risk," European Central Bank president Jean-Claude Trichet said Friday, speaking in Washington at the annual International Monetary Fund conference of central banks governors and finance ministers, which closed on Sunday.
"This is threatening financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond."
No official new policy announcements emerged from the conference – though newspapers on Monday report plans to boost the size of the Eurozone's bailout fund, the European Financial Stability Facility, from €440 billion to €2 trillion.
European officials at the conference also repeated recent suggestions that leverage be used to increase the EFSF's asset-buying potential, according to press reports.
European leaders agreed on July 21 that the EFSF should be granted new powers to buy government bonds and recapitalize troubled banks.
"Anyone who thinks that the EFSF will be a miraculous solution to the problem is making a very big mistake," said Antonio Borges, director of the IMF's European department, on Sunday.
"It is very important that we see a combination of the ECB and the EFSF...the ECB is the only agent which can really scare the markets."
"For monetary policy to remain effective," former ECB governing council member Juergen Stark warned a day earlier, "its responsibilities must remain within clear limits...opportunistic manipulations of the monetary policy framework of course damage the foundations on which that framework rests."
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