Last Updated : 29 November 2012 at 16:15 ISTYesterday, the yellow metal was bled white by shall we say, some ghost? It possibly was a ghost, as analysts are all the more puzzled: there was no major news that came out during or near that time frame to explain the sudden dip. February gold last traded down $26.00 at $1,718.80 an ounce even as spot gold was quoted down $25.20 at $1,717.25. Silver shed 1% and was seen at $33.725 an ounce. It recovered later on.
One thing which I would like to put forth is this:
News drives commodity markets to a great extent. But those who actually make money in the markets are not driven by news, but by virgin information. Information that they gather through enviable networking and incisive analysis. They are often High Net Worth Individuals who have invested tons of money in commodities. The quality of information that they receive is unmatched and unparalleled.
So, what caused the crash:
I seriously doubt the issue has got something to do with fiscal cliff. The ones who carried out sell orders must have got some reliable information regarding US fiscal cliff talks. [No other issue, perhaps other than Eurozone crisis can have this kind of depth and can influence the markets in so big a way, making information flowing out of it to be of high value.]
The talks could have a positive outcome: this is no insider information, but any sensible market-watcher could reach this conclusion. No member of US Congress would let a recession creep in by making the fiscal cliff talks a complete failure. The disgruntled Americans would never forgive them for that.
However there is some stark contrast. There always exist a possible risk that things could go wrong, anywhere, anytime.
But risk could be insured against. How about uncertainty? One cannot insure against uncertainty, unless one gets concrete and reliable information that could demystify the ambience. My point is, somehow or other, some of those who placed sell orders in gold could probably had some positive information that the cliff issue will be addressed in a sound manner.
This in turn caused some selling which also triggered algorithmic stop loss attempts aggravating the bloodbath. Movement in one commodity can substantiate my point. Silver: the commodity gained after it dropped initially (following the trend in gold) making a comeback and closing with minimal losses.
And silver is an industrial metal. Industries use a major chunk of silver mined. If the fiscal cliff issue could be avoided, then that may prove to be beneficial for silver as a recession could be averted and as the recovery would continue; but the same could prove to be bad for gold, which some of those sellers averted by selling.
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