Gold: Huge Volatility But Where Next? – Precious Metals – Resource Investor

Ross Norman

Published 9/27/2011

Yesterday gold suffered a dramatic fall, losing $131 from its high in Asia at $1663 to a low of $1532 just ahead of the London opening—down 7.5%. Gold then promptly bounced and was last trading at $1614. Such high levels of volatility are unusual, but then we live in unusual times. We have almost become inured to the idea that equities suffer these sorts of price swings, and to the order of magnitude that in olden times might have represented an entire years gain or loss—but bullion ?

The recent move in gold looks on the face of it like a ‘Lehman’s moment.’ Back in October 2008 when Lehman collapsed, gold also fell as margin calls in collapsing equities were funded by the selling of profitable positions in gold. Gold’s move was counter-intuitive in that it did the opposite of what was widely expected. In short, gold became part of the problem and not the solution for those concerned with wealth preservation… but only temporarily.

It is not immediately clear at this juncture who was selling yesterday or why—but the placing of such a huge order into the market when the least number of market participants were active tells you that they were out for dramatic effect. Anyone looking to offload significant amounts of metal at the best possible price would have done so when both London and New York were open. This would have ensured they hit the market when it was most liquid so as to get the best price. Clearly finessing gold into the market was not their motive—they wanted a statement.

Gold’s fall has also effected two important ‘requirements’ from a technical or charts perspective. It will have satisfied those who saw gold as forming a double top that it has now completed that move, and it has filled a chart gap at $1675. Both leave gold clear to move higher.

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via Gold: Huge Volatility But Where Next? – Precious Metals – Resource Investor.

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