Traders in London were left scratching their heads on Wednesday morning when a rapid-fire 10-second spell of selling sent gold prices quoted on a Bloomberg monitor down suddenly by about $10 (£6) to trade near $1,260 an ounce.
IG Markets commented that the fall came suddenly following a 2,000-contracts sell order hitting the market, but the incident shows how markets don’t always comply to the logic of traders reacting to big news events that are publicly disclosed and that we all know about.
It also illustrates the challenges facing the FCA in investigating alleged rigging of heavily traded commodities or asset classes such as gold and currency, where prices can often shift on the slightest rumour or sniff of bearish sentiment.
Traders I spoke to in London this morning were themselves lost for an explanation over the gold price other than to say the drop was triggered by electronic trading, which kicks in when a price crosses a key support level as it did today.
In times of economic uncertainty, investors bet on gold as a hedge against inflation and low interests rates. Its traditional safe haven status saw the price for an ounce of the precious metal soar above $1,900 back in the dark days of 2011.
With the global economic outlook improving daily, gold traders are anxiously waiting for the release of the minutes from the Federal Reserves last meeting for any signs that the central bank will soon taper its $85bn a month bond buying programme. Such a move would see gold prices again fall sharply.
The Telegraph has the full article
