The price of gold plummeted towards the end of last month (26th June) when a trader ‘accidentally’ sold 1.8 million ounces of gold.
Prices hit a 5-week low of £977.65 with traders agreeing that it had likely been a mistake.
Ben Kumar, investment manager at 7 Investment Management, told the Daily Mail: “I think it always gives people a bit of pause for thought to see a market can be moved like this. It’s hard to understand how it happens, with all the checks and balances in place, but there is always the possibility that someone adds an extra zero to a trade and it has these unintended consequences.”
MKS trader Bernard Sin agreed. He told Reuters: “Clearly somebody sold it by mistake and bought it back quickly, triggering stops below $1,250.”
It could also be possible that a computer error is to blame. Traders use programming to monitor markets and buy or sell according to an extremely complicated algorithm. Whilst generally very reliable, these programs can sometimes make a mistake, leading to spikes or falls in the market - known as flash crashes - that can’t always be explained.
Tom Beckett, chief investment officer at Psigma Investment Management, told the Daily Mail: “It could be that this was a computer algorithm. There are risks to automated trading and it can lead to big spikes or falls in the market which can’t be explained.”
Speaking of such flash crashes, David Govett, head of precious metals trading at Marex Spectron Group, told Bloomberg that these swings could become more widespread given the current state of play. He added: “The more they happen, the worse they will become as people back away from holding positions."
Despite the recent volatility, investors should not be discouraged. Traders and the market as a whole are still seeing gold as a good insurance policy worth holding in a world of political instability and uncertainty.
Mr Beckett added: “Investing in gold is a sensible move at the moment, with so much political uncertainty across the world. The gold price is up almost 10 per cent since the start of the year and I expect it to go up further.”
Whilst no one can predict future prices of gold exactly, the current climate and investor response does suggest that it’s worth considering buying gold bullion as part of your portfolio.
