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This Week’s Gold Price “Flash Crash” Explained

Wow! Who else was shocked by the gold price last Monday? In case you missed it, gold prices went as low as $1088.05 an ounce — the lowest since March 2010.

Now, we all know that gold prices fluctuate, but it’s never arbitrary – many attitudes, actions, and world-events can factor into whether the price of gold increases or decreases. In this particular case, the reason for this “flash crash” was easy to determine.

According to the London Evening Standard, an unnamed investor sold five tons of gold on Shanghai’s exchange market. Of course, that much gold selling all at once drastically reduced consumer demand, causing the price to plummet.

The interesting thing about the sale was not the size, but the timing. Consider the following:

  • The sale occurred overnight, when the Shanghai gold market was slowest. If the investor really wanted to make money, they would have sold when trading was most active.
  • China officially released the numbers behind the country’s gold reserves – which were much lower than anticipated. 
  • The financial crisis in Greece is finally starting to look a little better (the banks opened on Monday for the first time in three weeks) – quelling some fears in the market and reducing gold demand.

Did someone pull a Steve Perkins and do some trading under the influence? Is someone trying to rig the gold market? We’ll keep our eyes on this story to find out.

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