Gold plunges to five-year lows after early Asia rout

Mon Jul 20, 2015 4:45pm EDT
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By Marcy Nicholson and Clara Denina

NEW YORK/LONDON (Reuters) - Gold prices plunged more than 4 percent to five-year lows on Monday as a sudden bout of selling across Shanghai and New York markets during the illiquid early Asian trading hours triggered a mini flash crash, deepening bullion's biggest rout in years.

A wave of sell orders in a one-minute period shortly after the Shanghai Gold Exchange opened on Monday sent the most-active U.S. gold futures contract GCv1 down $48 to as low as $1,080 per ounce, its weakest since February 2010.

Within two minutes, an estimated 33 tonnes of gold in Shanghai and New York worth $1.3 billion changed hands. A lack of liquidity, with Japanese markets closed for a holiday, hastened the slide.

The ferocious selling triggered CME circuit breakers twice within one minute just before 9:30 p.m. EDT (0130 GMT) on Sunday.

The exact cause of the selling was not immediately known, but traders and analysts attributed the massive move to high-frequency trading algorithms as well as stop-loss selling.

"It was just a bit of a bear raid and there was nobody on the other side to mop up the selling," Societe Generale analyst Robin Bhar said.

Prices recouped some losses by the end of trading in New York, but the latest slide helped wipe out half the gains from the last decade's historic bull run, taking prices back to a key chart level and threatening a break towards $1,000 an ounce.

The breadth of the latest sell-off will underscore bullion's worsening outlook as the dollar .DXY strengthens and investors brace for the U.S. Federal Reserve to raise interest rates for the first time in nearly a decade.   Continued...

A woman holds a one-kilogram gold bar at the headquarters of the Australian Bullion Company (ABC) in Sydney April 19, 2013.    REUTERS/Daniel Munoz