Reuters

Singapore

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.

Sensitivity to the dollar-yen exchange rate may also help explain the moves, although 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 October 31, when US gold futures fell through a major technical level of $1,180 an ounce at around 3pm 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.

Some of the dips in price have tracked dollar-yen movements, including that one on October 31, when the Bank of Japan announced a surprise increase in monetary stimulus and the yen tumbled.

The breach of $1,180 – the lowest level hit by gold during last year’s 28% slide – sparked a huge sell-off in the precious metal over the next two weeks.

In the days following the first dip, gold tumbled 1% or hit new lows almost every other day around the same time, between 12:45pm and 1:45pm Singapore time.

The slide took gold all the way down to $1,130.40 an ounce, its lowest since March 2010, reached in Asian hours on Nov. 7, when nearly 4,000 lots changed hands in just one minute.

It has since recovered and is back trading near $1,180.  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.

Gold has seen a flurry of trading activity since the first break below $1,180 and its volatility is currently at its highest in 2014.  A growing awareness of the new Asian trend may have served to intensify it.

“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.”

This trader and others speculated that the selling could be coming from hedge funds.

The simplest explanation for the volatility in Asia remains the rise in the dollar to a seven-year high against the yen. A stronger greenback makes dollar-denominated bullion more expensive for holders of other currencies.

“There is definitely more Japanese participation. Gold could be sold off along with the yen so that Japanese investors could put money into the Nikkei,” said Tan Tien Leong, chief investment officer of Singapore-based hedge fund AN Commodity.