October 1, 2013 / 12:17 PM / 6 years ago

PRECIOUS-Gold tumbles 3 pct, rattled by fund trade, govt shutdown

* Sizable sell order in early trade accelerates selloff
    * Market talk of fund liquidation triggers stop-loss orders
    * Selling specific to gold as dollar down, S&P higher
    * Coming up: U.S. ADP national employment index Wednesday

 (Adds comment, updates market activity)
    By Frank Tang
    NEW YORK, Oct 1 (Reuters) - Gold sank nearly 3 percent on
Tuesday to its lowest level in almost two months as an unusually
large trade in the New York futures market rattled investors
already edgy over a partial shutdown of the U.S. government.
    Bullion fell abruptly in early U.S. trading as a massive
Comex sell order appeared to overwhelm the market, sending
prices $25 an ounce lower and triggering further technical
stop-loss selling below $1,300, analysts said.
    Silver, copper and crude oil also fell at the same time,
although not as sharply.
    The early activity stirred market talk of forced liquidation
by a distressed commodities fund and of selling related to a
fund rebalancing on the first day of the third quarter, although
no details could be confirmed. 
    Other traders said the decline was fuelled by disappointment
that the U.S. government shutdown had failed to trigger a rally
in safe-haven bullion.
    "Because we had such a significant run-up in the second
quarter, money managers want to book their quarterly profit,
especially with the tremendous amount of volatility," said
Jeffrey Sica, chief investment officer of Sica Wealth
Management, which has over $1 billion in client assets.
    Yet profit-taking did not seem to fully explain the sudden
drop between 8:30 and 8:40 a.m. EDT (1230-1240 GMT) to an
intraday low of $1,284 an ounce, with volume of some 24,000 lots
changing hands in 10 minutes - about a fifth of the market's
trading activity at the time.
    U.S. Comex gold futures for December maintained those
losses throughout the session, settling down $40.90 at
$1,286.10, with total trading volume about 20 percent above its
30-day average, preliminary Reuters data showed.
    Spot gold fell 2.8 percent to $1,289.51 by 3:12 p.m.
EDT (1912 GMT), having earlier hit $1,282.59, its lowest price
since Aug. 7.
    The decline appeared to be specific to gold, with the dollar
little changed and U.S. equities rising almost 1 percent in a
show of some resilience amid the government shutdown. 
    Jonathan Jossen, a Comex gold options floor trader, said
selling related to huge bearish bets in December put options
might have also pressured gold futures.
    Bullion posted a 7.6 percent gain for the third quarter, the
first quarterly rise in a year, rebounding from a record 23
percent plunge in the second quarter. It is still down some 23
percent on the year after a two-day $225 drop in April. 
    Some investors had anticipated gold prices would rally
further on uncertainty related to the government shutdown, as a
prolonged closure could derail the U.S. economy's tentative
    Up to 1 million federal workers were temporarily thrown out
of work on Tuesday as the U.S. government partially shut down
for the first time in 17 years in a standoff between President
Barack Obama and congressional Republicans over healthcare

    Traders are also paying closing attention to the U.S. debt
ceiling deadline in mid-October. During the 2011 debt-ceiling
crisis, an agreement was reached only at the last minute to
avert a U.S. default, helping gold to hit a record high of
$1,920 an ounce in September 2011.
    "The market had priced in a screaming rally off of it
(Congress deadlock). When it didn't materialize, that triggered
stop-loss orders in gold futures," said Frank McGhee, head
precious metals dealer at commodities brokerage Alliance
Financial LLC.
    In the physical retail sector, a survey by online precious
metals market BullionVault showed that its private-investor
sentiment slipped in September but the Federal Reserve's
decision to keep its massive bond-buying program limited further
    Among other precious metals, silver fell 2.3 percent
to $21.14. Platinum was down 1.4 percent to $1,379.40 an
ounce, while palladium fell 0.7 percent to $716.47 an ounce.

 3:12 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold DEC   1286.10 -40.90  -3.1  1282.40 1337.80  196,015
 US Silver DEC  21.175 -0.533  -2.5   20.630  21.970   50,492
 US Plat OCT   1381.70 -26.40  -1.9  1373.00 1410.50      417
 US Pall DEC    718.90  -8.25  -1.1   714.00  729.10    4,587
 Gold          1289.51 -37.43  -2.8  1283.55 1337.16         
 Silver         21.140 -0.500  -2.3   20.620  21.940
 Platinum      1379.40 -19.40  -1.4  1377.25 1408.24
 Palladium      716.47  -5.03  -0.7   716.52  726.75
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        202,944   163,003   189,283     24.28    2.30
 US Silver       52,604    61,059    61,402     33.44    1.26
 US Platinum     14,299    14,092    13,288     19.69    0.00
 US Palladium     4,630     6,349     5,750                  

 (Additional reporting by A. Ananthalakshmi in Singapore, Silvia
Antonioli and Veronica Brown in London; Editing by James Jukwey,
Bob Burgdorfer and Jim Marshall)
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