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Overnight Gold Price Drop a Mystery

Suddenly and without warning, gold prices fell off a cliff last night. It was the second overnight gold sell-off in as many weeks.

What’s more troubling is that no one seems to have an explanation as to why it happened.

TD Securities traders called the sudden “flash crash” a “mystery”. Even more mysterious was what happened at 12:47 p.m. eastern time, when 3,000 contracts changed hands – pushing gold prices down $10 an ounce in the span of a minute.

What U.S. investors awoke to today was a spot gold price that was below $1,700 an ounce for the first time in a month. As of 2 p.m. ET today, gold is down 1.4% today to fall to $1,696 an ounce.

Last Wednesday there was a similar drop-off in gold in the first minute of New York floor trading after a wave of bearish options contracts the night before. Combined, the two mystery sell-offs have shaved about 3% off the price of gold. The yellow metal had reached $1,750 an ounce as recently as last Monday.

Volatility in the stock market could have something to do with gold’s sudden struggles – though gold typically acts as a safe haven in uncertain times.

According to The Wall Street Journal, one analyst speculated that the sell-offs may have had something to do with “frustration” among gold investors that prices haven’t been able to break the $1,800 barrier. Another analyst attributed the decline to fears that the fiscal cliff might tax gold investments at a higher rate next year.

But still…$10 an ounce in one minute? It’s hard to believe that 3,000 people would suddenly want to sell all their gold to avoid possible 2013 tax hikes at 12:47 a.m. on December 4. There must be something else at play – and hopefully it’s a short-term problem.

Taking the longer view, gold is still having yet another strong year. Gold prices are up 8.3% in 2012 even after their recent retreat. That’s not far off last year’s 10% gain. And the metal has still more than doubled over the past five years.

As we’ve preached repeatedly here at Wyatt Research, patience is key when it comes to gold investing. Take comfort in the fact that gold has risen every year for the past decade. And most importantly – don’t get thrown off your position by wild short-term swings in the price of gold.

Even when they’re a mystery.