Gold slump marks second key futures market jolt in single day

Gold slumped in morning trade in New York after a sell order for a large number of futures contracts – equivalent to 24 metric tons – caused a similar market reaction to the massive futures contact trade order that hit Stockholm earlier today CET.

The gold spot price fell 2.25% in New York, as the sell order equivalent to 7,800 gold futures contracts high the market just as it was about to open.

In Stockholm earlier today the Nasdaq OMX was forced to shut the derivatives market after a trade order hit the order book equivalent to some 4.2 billion OMXS30 futures contracts, worth 130x Sweden’s GDP.

Ross Norman, CEO of Sharps Pixley, a precious metals trader in London, said that if the gold sale was an attempt to make money through end of year selling, then it was “inept”.

“Dealers try and finesse big sell orders into the market to get the best (highest) price for the biggest volume they can and thereby optimize profit – that requires stealth,” Norman said.

“If on the other hand it was a ‘fat finger’ episode as has been suggested with a broker said to be looking to roll his December gold futures contract then it was even more inept.

“More likely this could be a short play, with the seller looking to trigger stops below the market at $1,730 [price per oz] and thus extend the move significantly lower and thus increase his profits. If so, he certainly caught the market on the hop as the move is counter-intuitive with everything else that is going on in the economy.

“Rising concerns about whether Democrats and Republicans can find common ground between tax increases and entitlement spend reduction remains to be seen. More importantly, the US reaches its law-enshrined debt ceiling of $16.4trn early to mid February 2012. That promises fireworks again as it did in August 2011 when gold hit an all time high of $1,922 as the market stares into the abyss of a possible US debt default.

Norman added that the long term fundamental reasons for buying gold remained intact, and that given the current macroeconomic environment, any short seller would “have to be quite brave.”


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