Why gold tanked

  1. 679 Posts.
    http://m1.mny.co.za/MGGold.nsf/Current/4225685F0043D1B242256BCF00643BAC?OpenDocument

    Why gold tanked

    By: Stewart Bailey

    Posted: 2002/06/05 Wed 20:14 | © Miningweb 1997-2002



    --------------------------------------------------------------------------------


    JOHANNESBURG – South African gold stocks were massacred today as freefalling bullion knocked almost 8 percent off the Johannesburg Stock Exchange's gold index. The fall in the bourse's gold stocks came in the wake of a large after-market trade in New York last night, with an unnamed fund liquidating 5,000 futures contracts, a move which knocked the price first to $326/oz, then to $324/oz and finally to $321/oz, where some dealers reckon it has found support.
    Interestingly, one senior Johannesburg-based trader says the long-liquidation by the fund appears to have been an intentional strategy to lower the gold price. He could not give reasons for the fund's alledged intent, although he said it could have been a move designed to lower the gold price in order to buy in again at lower levels. The sale was executed using the 'Access' system on Comex, which allows for anonymous trading by large funds.

    The trader said the sale was made in an illiquid market, between the New York close yesterday and the opening of the Tokyo market this morning.

    "They also sold illiquid months and that pushed the price down. It was definitely someone trying to butcher the market," said the trader. The deal was done for 2,000 December contracts, a particularly thin month, and 3,000 August contracts. It sparked a series of stop-loss selling which the trader said created a feeding frenzy among those long gold bullion; this brought on the long liquidation many market commentators have warned of in recent weeks.

    But the bullish undertone in the market remains firmly in place, despite today's spectacular $9/oz fall in the price. Another bullion dealer said the metal would do well to consolidate at the lower levels before launching another assault at the key $330/oz mark. "We all knew it had to take a bit of a breather. This fall has been quite drastic but if it had fallen slower we would just have said it was just what the market needed," said the dealer.

    He said upside for the metal was still in place as it continued to track the Euro.

    The European currency's downward correction against the dollar last night, he said, was also a factor weighing on the gold price. The trader said, however, that the Euro was expected to strengthen further against the dollar from its current levels of around $0.935, which in turn would lift the gold price.

    But that will be cold comfort for gold share traders who took a haircut in the market today. In Johannesburg, Gold Fields, the darling of the market last month, dropped 10.49 percent to R129.43, while non-hedging rival Harmony Gold lost 8.82 percent to R163.60.

    Durban Roodepoort Deep dumped 6.18 percent to close on R51.65 and AngloGold, the bourse's number one dropped 6 percent from yesterday's record close to R628 a share. New entrant ARMGold lost 4.2 percent to R55.85 and junior Afrikander Lease took a 9.09 percent hammering to R6.36.

    In Australia, the dip was less marked. Auriongold, the subject of a takeover bid by North American Placer Dome, shed 1.74 percent, while number two producer Newcrest dipped 1.09 percent to A$8.19.
 
GET SUPPORT arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.