One of the more peculiar aspects of today's trading was the large plunge in gold. The yellow metal fell approx $43 to $1200 which seemed curious because the dollar was down against the euro. More importantly gold closed right at its lows for the day which could foreshadow further losses in the days ahead. But the question is why did gold fall so much? From what I have heard from a few commodities traders was that it was due to the surge in the Euro. After the Spanish bond auctions went relatively well investors seemed to interpret it as a positive the Euro and EUR/USD surged about 200 pips. Euro strength was seen against all pairs, even EUR/CHF (which has been in free fall). Traders said the move in the euro caused unwinding of the long gold/short Euro trade which many hedge funds and institutions had put on in recent months (worked pretty well too). This trade had become rather crowded and the large moves caused forced liquidations by some. Is this the real cause? I really don't know but it makes sense to me.
Black Swan Insights