Fat-finger trade or not?

2012-MAY-01

The gold price was basically flat over the course of yesterday, starting the session just above $1,660, and finishing just above $1,660. Of note though was a large sell-off at the beginning of Comex trading in New York, with an entity selling 7,500 gold contracts during one minute of trading at 8.31 EDT (12.31 GMT). To put this trade in perspective in terms of physical gold, as each Comex gold contract represents 100 troy ounces of gold, this is the equivalent to someone selling 750,000 ounces.

The overall transaction was worth $1.24 billion, and succeeded in triggering a wave of selling which forced the price down from above $1,661 to $1,648.80 in a matter of minutes. As The Wall Street Journal’s Tatyana Shumsky comments, the strange thing about this is that trading yesterday was expected to be quiet – with Chinese and Japanese participants on holiday and European traders taking time off around May Day holidays. If you’re interested in maximising your sales return, it seems odd to choose such a day in order to sell – and even odder to do it all in one transaction in one minute. In the words of one trader she quotes: “No one who has the account size and the money to trade thousands of gold contracts would do it in one transaction, that’s just stupid.”

This has some speculating that the trade was a result of a keystroke error – a so-called “fat-finger trade” (or “Gold Finger” as some joked). Others though are unconvinced by this hypothesis, with Chuck Retzky, director of futures sales for Mizuho Securities USA highlighting the fact that silver prices suffered a similar leg down at the same time as gold, tumbling 35 cents to $30.805 a troy ounce, but other markets like Treasuries, currencies and stocks were unperturbed: “To do it both in gold and silver tells me that it wasn’t a trade done in error.”

Whatever the motivation of the seller, it made little difference in the end – and is but a blip in terms of the longer-term gold story. Nick Laird’s excellent website ShareLynx has a couple of long-term gold price charts that put all these daily price moves in perspective, and show the firmly established bullish trend in gold.