2ndlook

Gold drops over $77, posts monthly loss

Posted in Current Affairs, Gold Reserves by Anuraag Sanghi on March 1, 2012


As gold prices recovered from December lows, to 3-month highs, there was ‘news’ that ‘someone’ dumped some gold. No surprise.

On February 29th, 2012

Gold advanced to a three-month high and silver posted its biggest gain in eight weeks as investors bought precious metals as an alternative to a weakening dollar. Platinum and palladium also rose.

Gold futures for April delivery advanced 0.8 percent to settle at $1,788.40 an ounce at 1:30 p.m. on the Comex in New York, after climbing to $1,792.70, the highest level for a most- active contract since Nov. 14.

Prices are up 14 percent this year after a 10 percent increase in 2011, the 11th consecutive annual gain, as investors sought to diversify from equities and some currencies. The dollar index has declined 1.2 percent this month while gold advanced 2.8 percent. (via Gold Leads Precious Metals Rally on Investor Demand for Dollar Alternative – Bloomberg).

And the next day, on March 1st, 2012

Gold fell 5% to below $1,690 an ounce on Wednesday for its biggest one-day drop in more than three years.

Gold fell nearly $100 and silver was down $3 from session highs. Losses started to snowball at (2030 IST).

Trading volume exploded when speculation about an unusually large sell-order ran rampant. Option traders said funds were heavy buyers of puts to protect against further losses.

Wednesday’s sell-off wiped out gold’s gains from earlier in February, and the metal ended the month with a 2.5% loss for its second decline in three months.

Earlier in the session, bullion touched a 3-1/2 month high at $1,790.30 after the European Central Bank completed offering cheap loans worth over half a trillion euros to banks.

Spot gold fell below its 150-day moving average for the first time in a month.

Analysts said the next important resistance level is $1,650 an ounce, where the metal found support during its last sell-off in late January.

Funds were heavy buyers of December $1,500 put options as some looked to profit and others tried to protect further downside risks in futures, said Jonathan Jossen, a COMEX gold options floor trader. (via Nymex gold down 5%, biggest 1-day drop in 3 yrs).

It was said that

in afternoon dealings, gold was also hit “by a large sell order on Comex, said to have been 1 million ounces (or 31 tonnes) prompted by the Bernanke testimony,” said Ross Norman, chief executive officer at London-based bullion broker Sharps Pixley. (via Gold drops over $77, posts monthly loss – Metals Stocks – MarketWatch).

Mainstream press manufactured some explanation.

Financial journalists were quick to talk about the “disappointment” that Bernanke didn’t discuss detailed plans for QE3, but that doesn’t make much sense. This bullish pattern was not unfolding merely on speculation that QE3 was imminent. There just really wasn’t anything all that remarkable from the Fed chairman on Wednesday, and certainly nothing to trigger this type of sell-off.

The Wall Street Journal ran a story called “Market Roiling Trade Likely Not ‘Fat-Finger’ Error” that discussed how an order to sell 100,000 treasury futures hit the market just minutes after Bernanke started speaking. This could have caused a cascade effect that knocked other algorithmic and high-frequency trading platforms into chaos, including programs linked to currencies, and therefore, to gold.

There was also a rumor that JP Morgan sold — shorted? — a million ounces of gold all at once for an Asian fund, which is 10,000 futures contracts. That is a HUGE order, and that kind of size just cannot be readily absorbed by the gold market. I’m not a gold conspiracy theorist, but it does make you wonder after this type of sudden drop.

One of the really interesting things about Wednesday was how the carnage was for the most part limited to gold and silver. (via Fractal Gold Report: Flash Crash).

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