A drastic sell-out in gold futures so far Monday is being blamed on heavy long liquidation, aggravated when sell stops were initiated.
10:23 a.m. EDT: gold for August delivery was $29.80, or 2.2%, lower at $1,307.60 an ounce on the Comex division of the New York Mercantile Exchange. “It’s widespread liquidation,” said one New York desk trader, pointing out the metal previously was climbing for six weeks.
The metal grew 8.6% to a high last week of $1,346.80 from a June 3 low of $1,240.20.
The rally mainly had been fueled by speculative
traders, as gold forward offered rates signaled no major physical demand had
emerged lately, said Kevin Grady, president of Phoenix Futures and Options LLC. The most recent leg higher was aided by worries about Portugal’s
Banco Espirito Santo. Now, 5% of the company has been sold and the
management has changed.
“Overall, it seems like the marketplace is OK with where they are right now,” Grady said. When some selling emerged, “weak longs” started exiting their positions, he continued.
“The big factor is this market was not brought up by the physical buyers. It was brought up by speculative buyers,” Grady said. “As soon as they realized everyone was long and there was no real buying…on the first bit of selling that came in, the (previous) buyers ran and liquidated those positions.”
Sell stops were hit, with one key level the failure of $1,310.90, Grady said. This resulted in a sweep of 6,500 lots, taking the August futures down to a $1,302.20 low.
Precious-metals broker with Newedge Tommy Capalbo, also cited profit-taking, with some looking to sell into the rally that had carried gold to its recent highs on safe-haven buying.
“Any time there is any type of unrest, like you saw out of the Middle East and Ukraine, you will see people see it as a buying opportunity,” he said. But, he later added, “longs here were taking profits.”
Precious metals strategist with RBC Capital Markets Global Futures George Gero added funds also exited long positions as equities rallied. The Dow Jones Industrial Average is up by around 124 points.