How $500 million got Wiped off in four seconds

In early Asian trading hours on Monday, when typically only tens of contracts of gold are traded, investors dumped more than $500 million worth of bullion in New York in four seconds, triggering the market’s biggest rout in years.


The sell-off began when one or more massive sell orders hit the price of gold on the CME Group’s Comex futures in New York a tenth of a second after 9:29 a.m. in Shanghai, triggering turnover of almost 5,000 lots of gold in a blink of an eye.8,000 lots moved the market by $50.

That equates to 13 tonnes of gold, more than typically trades in hours during this time of day, and the selling knocked the price almost $20 to $1,100 per ounce during those four seconds. It marked the first leg of a dramatic 60-second sell-off that saw prices sink more than 4 percent to five-year lows.

The selling triggered stop loss orders, pushing prices through technical support levels and leaving bullion teetering on the brink of $1,000 per ounce. Low liquidity in both markets accelerated the drop.

Expectations the Fed will raise rates later this year as U.S. recovers have dragged gold prices lower; the bullion reported its deepest loss in nearly two years on Monday

The magnitude of the drop showed low interest in the gold market even at current levels was exacerbated by a toxic combo of a potential Fed rate hike and a regulatory environment reducing trading interest



The episode was the biggest in a string of sell-offs during Asian hours that have plagued the illiquid market in the past few years and stirred memories of the 2013 rout that wiped hundreds of dollars off the price of gold.

And it only took one minute.

First, CME circuit-breakers stopped trading after the main contract sunk $20 in just four seconds to prevent cascading stop orders that could exaggerate price movements in illiquid markets.

When trading resumed, another 1,554 lots changed hands over the course of nine seconds, pushing prices down a further $29, or 2.7 percent, to hit five-year lows of $1,080 an ounce at 9:29:32, triggering the second circuit breaker.

As of 10:46 p.m. EDT, spot gold traded at $1,096.4 per ounce, down 0.5 percent, teetering close to Monday’s lows, suggesting there is more pain to come.


Reporting by Josephine Mason; Editing by Tomasz Janowski



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    July 23, 2015
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