Year to the day of $200 shocker, another strange gold price plunge

The price of gold has been rising steadily thanks to safe-haven buying in response to geopolitical crisis and continued support from loose US monetary policy to reach a more than three-week high on Monday.

On Tuesday the Ukrainian crisis threatens to spin out of control with both sides sending troops into the restive east.

And new numbers in the US show a higher than expected rise in inflation, another positive for gold and its status as a hedge against inflation.

But the gold price does not react as expected. Not at all.

Shortly after the New York market opened, the price of gold suffers a quick gap down dropping $43 an ounce to $1,284.

As the chart shows, during the drop around 8:25 volumes spike with some 2.28 million ounces (64 tonnes) dumped onto the market in three big chunks.

Market watchers scramble to find reasons for the drop:

  • Profit-taking and squaring positions ahead of Easter long weekend on Western markets.
  • A sense that the recent rally was "overdone".
  • Predictions of a moderation of demand growth from China after a 30% jump in 2013.
  • Technical factors causing a liquidation of long positions held by large investors.
  • A loss of confidence after a dip below the psychologically-important $1,300 level.

The flash crash on 15 April 2013 – one year ago to the day – when gold dropped $130 in a single session and more than $200 over just two days, also happened without warning.

The crash took the price of the yellow metal from a high of $1,566 on the Friday to a low of $1,330 on Monday, a 15% smack down.

A convincing argument has been put forward that the drop was the result of the "shock and awe" tactics of a short seller to break the backs of the gold bulls.

April 2013's plunge sent shockwaves through the gold market and caused a a turnaround in sentiment from which the metal has never recovered.

By lunchtime today gold had creeped back above $1,300, still down $25 or 2% on the day.

Perhaps this time gold will be able to absorb the shocks. Or, more likely, prepare for more assaults.

Year to the day of $200 shocker, another strange gold price plunge

Source: CME

Image by Javier Cabrio.