Gold tumbled about 2 per cent on Tuesday on heavy stop-loss orders placed by momentum traders as prices broke below the key 200-day moving average. Silver and platinum group metals also sold off after Monday’s rally across the board.
In the 10 minutes between 8:20 a.m. and 8:30 a.m. EDT (1220-1230 GMT), trading volume in US gold futures measured nearly 20,000 lots, or one-fifth of the total turnover at the time. Prices plunged $US15 at 8:27 a.m. in just a minute, ahead of the release of data showing rising US consumer inflation.
A bout of stop-loss orders placed by ‘trend followers’ cascaded into each other when prices sank below their 200-day moving average near $US1,300 an ounce, said Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial LLC.
Gold’s sharp pullback came even as Ukrainian armed forces on Tuesday launched a ‘special operation’ against militiamen in the country’s Russian-speaking east.
Traders said the premium of geopolitical tensions has already priced in the gold market. “When you have today news, the gold market is likely to go in the opposite direction of what you had expected,” McGhee said. “Gold is doing what it should be as opposed to just reacting to the immediate headline of the day.”
Gold for June delivery fell $US27.20, or 2.1 per cent, to settle at $US1,300.30 a troy ounce. Earlier, gold hit a low of $US1,290.34 an ounce and at the time was on track for its biggest one-day drop since Oct. 1.