Gold (GLD) prices took a surprising tumble at beginning of trading yesterday despite the US dollar (UUP) remaining fairly unchanged. In fact 7800 futures contracts representing 24 Tonnes of gold were sold in the market within one minute causing an obvious supply demand imbalance resulting in a 2.25% price drop. Quite significant market move.
Mind you other commodities were also dragged down as we witnessed a “risk off” trade take hold for most of the day. But what happened in the gold market?
Was it an algorithmic trade? Quants are an easy scapegoat for a such a large and unexpected move.
Fat finger? Nothing against our fast-food McDonald loving traders but seriously watch the fingers!
George Soros? Paulson? One of the big boys unwinding their gold positions…
Fiscal cliff fears? Continued overhang on the markets but unlikely to trigger such move.
Well the bottom line is that we don’t know. Or at least not yet.
And we don’t really care. Unless it happens again this morning.
Our analysis continues to give a positive outlook for gold in the medium-term with a neutral rating in the immediate and short-term.
Once the fiscal cliff issues are resolved. The US Federal reserve is likely to continue its quantitative easing ways with diminishing returns. This will continue to weaken the US dollar over the long-term pushing gold prices higher.
Not only is gold a hedge against the US dollar but a hedge against all other fiat currencies including Euro and Yen.