The price of gold reached a 5-week low of £977.65 on 26th June following the sale of 1.8 million ounces of gold.
Whilst most traders agree that a sale of such a massive quantity of gold must be a mistake, there are differing views on how it might have happened, with no one knowing for sure what caused the sale.
Some traders are calling it a ‘fat finger’ error and believe the mistake was likely made by a junior trader who mistook lots for ounces.
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, telling Reuters that he believes it was “clearly … sold by mistake”.
There are some other theories doing the rounds, however, which suggest that a computer is to blame. Traders use complicated algorithms to monitor markets and to buy and sell according to pre-programmed conditions. It’s possible that the algorithm’s designers failed to account for a specific and complex set of market conditions that triggered the sale.
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 falls in the gold price (known as flash crashes), David Govett, head of precious metals trading at Marex Spectron Group, told Bloomberg: “These moves are going to become more widespread with the way things are going. The more they happen, the worse they will become as people back away from holding positions.”
Even with the risk of fluctuations like this, gold is generally seen as a stable investment. The precious metal tends to hold its value even during times of uncertainty and global market volatility, making it a useful safe haven for investors looking to balance their portfolios.
If you’re considering an investment in gold bullion, take a look at UK Bullion’s selection of gold bars here.