Gold hit by panic selling
16.03.2011 | GoldMoney
From The GoldMoney Dealing Desk --
The gold price has recovered somewhat in today's Asian trading session, following yesterday's panic sell-off in nearly all asset classes in response to the situation in Japan. At the low point yesterday the spot price of gold reached $1,381 per ounce – a steep fall from its opening at $1,416.
Algorithmic trading – also known as black box trading – accentuates such panic sell-offs. Over 50 per cent of orders on the London Stock Exchange are entered by such pre-programed computer algorithms. On some American markets the percentage is much higher. The trend-following bias of many of these programs generates automatic selling at any hint of market weakness, with a snow-ball effect generated once all the hedge fund computers start following the selling trend.
Those buying gold bullion for the long haul should remember that there are now countless buyers in Asia who are more than happy to relieve western money managers of their gold. These committed Asian buyers take advantage of any such sudden dips in the gold price, which helps to alleviate the selling pressure generated by hedge funds.
Of greater long-term significance than this latest selling spasm was the reaction of the dollar to yesterday's events. Although US Treasury bonds were bid up by capital seeking a "safe haven", the dollar remained listless. The Dollar Index (USDX) didn't even manage a close above 77 – instead sinking down to its 76.5 opening after a brief rally higher early in the London trading session.
As with prior events in the Middle East which failed to generate any kind of dollar bounce, it must surely be worrying for some in the US government that the dollar – previously the automatic "buy" option during times of geo-political uncertainty – cannot seem to muster any kind of a safe-haven bid. If this is the situation now, what will the Dollar Index look like in another month if the European Central Bank decides to raise interest rates?
It looks as though Federal Reserve Chairman Ben Bernanke is getting his wish for a weaker dollar. Unfortunately for ordinary Americans, the price of victory in the "currency war" will almost certainly be a diminished standard of living, as the inflated dollar buys less and less on foreign markets. All the while, the gold price will continue to appreciate.
« Back
