Gold
sank like a stone at 9 a.m. in London after a huge spike in volume in
New York futures that traders said was probably the result of a "fat
finger," or erroneous order.Trade shot up to 1.8 million ounces
of gold in just a minute, a level not reached even with the surprise
election of U.S. President
Donald Trump or Britain’s vote to leave the European Union.
“No
one has a clue, apart from the unfortunate individual that pressed the
wrong button,” David Govett, head of precious metals trading at Marex
Spectron Group in London, said of the spike in volume. Thin activity and
automated trading may exacerbate such moves, he said.
Others said a trader may have made a larger order than intended, or underestimated the market’s ability to absorb so much gold.
Some 18,149 lots were traded on Comex in just a minute, before falling back to 2,334 lots an hour later.
Gold
futures fell as much as 1.6 percent to $1,236.50 an ounce on the Comex,
the lowest for a most-active contract since May 17. The metal for
August delivery settled at $1,246.40 an ounce at 1:37 p.m. in New York,
below the 100-day moving average.
The mysterious plunge “has the market spooked,” says Bob Haberkorn, a senior market strategist at RJO Futures.
‘Muppet’ Trade
“This
bears the hallmarks of a fat-finger ‘Muppet’ -- a trade of 18,149
ounces would be a very typical trade, but a trade of 18,149 lots of a
futures contract (which is 100 times bigger) would not be,” Ross Norman,
chief executive officer of Sharps Pixley Ltd., a London-based
precious-metals dealer, said in a note.
“It leaves us wondering if a junior had got confused between ‘ounces’ and ‘lots,’” Norman said.
Some speculated that the sell-off may have been prompted by technical concerns.
“Gold’s
failure at the $1,255 resistance level may have triggered a technical
sell and with limited participation, the size of the sell order pushed
gold” down to the next support level, Peter Hug, marketing director at
Kitco Metals Inc., said in a note to clients.
Bullion pared losses after a
report showed U.S. orders for business equipment unexpectedly declined.
Rising
use of computer-driven algorithmic trading has often been blamed for
extraordinary movements in financial markets, known as flash crashes, in
recent years.
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“These
moves are going to become more widespread with the way things are
going,” Govett said by email. "The more they happen, the worse they will
become as people back away from holding positions."
There were also signs of falling demand for gold as China, the largest consumer,
bought less from Hong Kong
in May. Purchases fell to a net 44.8 metric tons, from 74.9 tons in
April, according to data from the Hong Kong Census and Statistics
Department compiled by Bloomberg.
In other precious metals
- Silver futures fell on Comex.
- Platinum also slipped on the New York Mercantile Exchange, while palladium advanced.
