PRECIOUS-Gold drops 1.5 pct on deflation fears, fund sales

Wed Nov 28, 2012 3:30pm EST

* Big sell orders by funds, Dec-Feb contract rollover weigh
    * Fall not result of momentary pause or erroneous trade-CME
    * Holdings of biggest gold ETF hit record high
    * Coming up: U.S. preliminary Q3 GDP, pending home sales
Thurs

 (Recasts, adds market details, updates prices)
    By Frank Tang
    NEW YORK, Nov 28 (Reuters) - Gold fell 1.5 percent on
Wednesday, its biggest one-day drop in nearly a month, as
deflation worries related to a U.S. fiscal crisis and
debt-stricken Greece triggered a heavy bout of stop-loss orders
from momentum-driven fund investors.
    After trading slightly lower in Asian dealings, bullion
prices suddenly plummeted $25 an ounce at the U.S. pit-session
open with an equivalent of more than 2 million ounces of COMEX
gold futures changing hands in less than five minutes. 
    There was market talk and speculation about a so-called "fat
finger" erroneous trade related to the contract rollover to
February from December before Friday's
first-notice day. A CME spokesman said the market sold off
without triggering a momentary pause which prevents price
swings.
    "I see a significant percentage of stop-loss orders being
triggered by algorithm traders. That could further accelerate
the declines as we see highly leveraged investors reduce
positions," said Jeffrey Sica, chief investment officer of Sica
Wealth, which manages more than $1 billion in assets. 
    A combination of funds' month-end profit taking long
liquidation after last week's rise and options-related selling
around expirations also pressured bullion, traders said.
    Spot gold hit a low of $1,705.64 an ounce, its lowest
price since Nov. 16. Later, it rebounded off its lows and traded
at $1,718.60, down 1.3 percent on the day, by 2:49 p.m. EST
(1949 GMT). 
    U.S. COMEX December gold futures settled down $25.80
at $1,716.50. 
    Trading volume was extremely heavy at nearly 440,000 lots,
more than doubled its 250-day average, preliminary Reuters data
showed, partly boosted by the December-February contract
rollover. It is on track to finish among the top three daily
turnovers in 2012.
    Gold's sell-off sent prices near recent lows between $1,703
and $1,705. Bullion could slide further due to a lack of chart
support if it breaks below that key support area, analysts said.
    (Graphic showing gold near recent lows:
     r.reuters.com/ner34t)
    
    LOST MOMENTUM OR SAFE HAVEN?
    Liquidation by jittery investors who recently added to their
long positions following Friday's sharp rally also fuelled
Wednesday's rout. CME data showed open interest fell but the
gauge of market activity held near a record high reached earlier
this week.
    Even though a recession related to the $600 billion U.S. tax
hikes and spending cuts in the new year could severely undermine
gold's inflation-hedge appeal, the so-called U.S. fiscal cliff
could also boost underlying safe-haven bids, analysts said. 
    This was demonstrated by holdings of SPDR Gold Trust,
the world's largest gold-backed exchange-traded fund, which hit
a record high of 1,345.813 tonnes on Tuesday.
    Among other precious metals, silver fell in line with
gold but also rebounded off a one-week low at $32.89. It was
last traded 1 percent lower at $33.68 an ounce.
    Spot platinum was down 0.4 percent at $1,601.90 an
ounce, while spot palladium climbed 0.8 percent to
$670.50 an ounce.
 2:49 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold DEC   1716.50 -25.80  -1.5  1705.50 1743.10  250,055
 US Silver DEC  33.684 -0.297  -0.9   32.900  34.040   85,795
 US Plat JAN   1611.70  -6.80  -0.4  1583.00 1616.90   10,714
 US Pall DEC    673.15   4.95   0.7   645.00  673.75    7,042
                                                               
 Gold          1718.60 -23.05  -1.3  1705.64 1742.85         
 Silver         33.680 -0.340  -1.0   32.890  34.040
 Platinum      1601.90  -6.35  -0.4  1584.00 1612.00
 Palladium      670.50   5.29   0.8   648.75  671.50
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        438,508   162,544   176,243     13.63    0.46
 US Silver      154,715    50,048    56,340     21.03   -0.17
 US Platinum     11,129     8,663     9,487     17.94    0.12
 US Palladium    15,365     4,894     4,630                  
                                                               
    

 (Additional reporting by Jan Harvey and David Brough; Editing
by Peter Galloway and Marguerita Choy)
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Comments (3)
ttolstoy wrote:
This is based upon a high level of naivete. Of course, today’s price drop in gold was due to fund liquidations. It is ALWAYS due to liquidations forced upon the over-leveraged get-rich-quick crowd. That’s how banking mafia attack precious metals prices, and makes money controlling the rising prices on behalf of the Fed, ECB and Bank of England.

They start a sudden selling spree that triggers the leveraged fund’s stop loss orders. The investors in these momentum funds end up getting fleeced, on a regular basis, by JP Morgan Chase and HSBC. The selling stops at the point just above where the Chinese and other Asians have their immense physical buy orders placed. If they allow the price to drop below that, they quickly end up with empty gold vaults that must be refilled by their central bank sponsors.

And, so the corrupt game of high finance rolls on, and the mass media exists in a state of total ignorance, as usual.

Nov 28, 2012 1:15pm EST  --  Report as abuse
goldenhawk wrote:
I am amazed at how many different explanations are given for the huge plunges in gold as it starts to rise. Who believes this BS? The price manipulators are out in full force. The game is so rigged it isn’t funny. But the paper manipulators will be left holding the empty bag of physical metal when all is said and done. These takedowns are merely opportunities to buy in at lower prices. In a few days from now we will learn who the real player was, and how connected he is to the syndicate. People are more awake than they think. Their game will soon be UP!!!! Keep buying the tangible asset. It is the REAL DEAL.

Nov 28, 2012 7:35pm EST  --  Report as abuse
luann0525 wrote:
The gold market is quite flukey. One day it goes way up. Next day it goes way down. There is too much variation here for it to be normal.

Nov 28, 2012 8:11pm EST  --  Report as abuse
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