It will come as no surprise to regular readers that gold (and silver) have suffered from 'odd' violent down-slams in the last few months but, as Bloomberg reports, those 'sneak-attacks' have become increasingly more prevalent during the thin illiquid hours of the Asia trading session. "It is unusual for Asia to be seeing these busy trading sessions," notes on trader, adding that "consensus seems to be that there is a big increase in algorithmic and high-frequency trading in this time zone." The trend began on Oct. 31, with gold futures falling $11 in a minute on nearly 9,000 lots (20x the norm) - all happening when the Chinese market is at lunch. As one Hong Kong precious metals trader remarked, "someone is utilising these thin trading volumes to get a turbo steroid move."
Some of the biggest price moves in gold since late October have, unusually, occurred in Asian hours and traders more accustomed to following the lead of their Western counterparts suspect a big increase in algorithmic trading may be to blame.
Some traders speculated that the timing looked suspiciously like attempts to catch Chinese traders off-guard during their lunch break.
Liquidity in Asia tends to be thin until Europe wakes up but recent weeks have been different: COMEX gold futures, the busiest gold contract in the world, have suffered sharp sell-offs in Asia, sometimes sparked by the news flow or currency moves but often for no identifiable reason.
"It is unusual for Asia to be seeing these busy trading sessions," said David Govett, head of precious metals at broker Marex Spectron in London.
"I have spoken to a lot of people about it and the general consensus seems to be that there is a big increase in algorithmic and high-frequency trading in this time zone nowadays as it can be quite easy to push about," he said.
The trend began on Oct. 31, when U.S. gold futures fell through a major technical level of $1,180 an ounce at around 3 p.m. Singapore time (0700 GMT). They fell $11 in a minute and nearly 9,000 lots were traded in five minutes, compared with just 535 lots in the five minutes preceding the drop.
In the days following the first dip, gold tumbled 1 percent or hit new lows almost every other day around the same time, between 12:45 p.m. and 1:45 p.m. Singapore time.
The price lurches that took the market lower often happened when traders in top gold consumer China, which usually provides support for the metal, were out for lunch.
"Someone is utilising these thin trading volumes to get a turbo steroid move," said a precious metals trader in Hong Kong.
Traders in Tokyo have also noticed that the falls tend to happen a few minutes before their markets are set to close.
"At one point in the last two weeks, there was huge selling at around the same time every other day," said a trader in Tokyo. "Some people noticed that and went short just before that particular hour."
"We are taking much smaller positions in gold and keeping it very simple because there is lots of uncertainty out there."
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Perhaps a call to the BIS is in order?