SINGAPORE Nov 20 Some of the biggest price
moves in gold since late October have, unusually, occurred in
Asian hours and traders more accustomed to following the lead of
their Western counterparts suspect a big increase in algorithmic
trading may be to blame.
Sensitivity to the dollar-yen exchange rate may also help
explain the moves, although some traders speculated that the
timing looked suspiciously like attempts to catch Chinese
traders off-guard during their lunch break.
Liquidity in Asia tends to be thin until Europe wakes up but
recent weeks have been different: COMEX gold futures,
the busiest gold contract in the world, have suffered sharp
sell-offs in Asia, sometimes sparked by the news flow or
currency moves but often for no identifiable reason.
"It is unusual for Asia to be seeing these busy trading
sessions," said David Govett, head of precious metals at broker
Marex Spectron in London.
"I have spoken to a lot of people about it and the general
consensus seems to be that there is a big increase in
algorithmic and high-frequency trading in this time zone
nowadays as it can be quite easy to push about," he said.
The trend began on Oct. 31, when U.S. gold futures fell
through a major technical level of $1,180 an ounce at around 3
p.m. Singapore time (0700 GMT).
They fell $11 in a minute and nearly 9,000 lots were traded
in five minutes, compared with just 535 lots in the five minutes
preceding the drop.
Some of the dips in price have tracked dollar-yen movements,
including that one on Oct. 31, when the Bank of Japan announced
a surprise increase in monetary stimulus and the yen tumbled.
The breach of $1,180 - the lowest level hit by gold during
last year's 28 percent slide - sparked a huge sell-off in the
precious metal over the next two weeks.
In the days following the first dip, gold tumbled 1 percent
or hit new lows almost every other day around the same time,
between 12:45 p.m. and 1:45 p.m. Singapore time.
The slide took gold all the way down to $1,130.40 an ounce,
its lowest since March 2010, reached in Asian hours on Nov. 7,
when nearly 4,000 lots changed hands in just one minute.
It has since recovered and is back trading near $1,180.
The price lurches that took the market lower often happened
when traders in top gold consumer China, which usually provides
support for the metal, were out for lunch.
"Someone is utilising these thin trading volumes to get a
turbo steroid move," said a precious metals trader in Hong Kong.
Traders in Tokyo have also noticed that the falls tend to
happen a few minutes before their markets are set to close.
Gold has seen a flurry of trading activity since the first
break below $1,180 and its volatility is currently at its
highest in 2014.
A growing awareness of the new Asian trend may have served
to intensify it.
"At one point in the last two weeks, there was huge selling
at around the same time every other day," said a trader in
Tokyo. "Some people noticed that and went short just before that
This trader and others speculated that the selling could be
coming from hedge funds.
The simplest explanation for the volatility in Asia remains
the rise in the dollar to a seven-year high against the yen. A
stronger greenback makes dollar-denominated bullion more
expensive for holders of other currencies.
"There is definitely more Japanese participation. Gold could
be sold off along with the yen so that Japanese investors could
put money into the Nikkei," said Tan Tien Leong, chief
investment officer of Singapore-based hedge fund AN Commodity.
"We are taking much smaller positions in gold and keeping it
very simple because there is lots of uncertainty out there."
(Reporting by A. Ananthalakshmi; Editing by Alan Raybould)