MANILA/SHANGHAI (Reuters) - As the global bullion market continues to reel from a dramatic plunge in gold prices on Monday, traders from Hong Kong to New York are pointing the finger at others for being behind the move while struggling to unmask the mystery sellers.
In early Asian trading hours on Monday, investors dumped more than $500 million worth of bullion in New York in four seconds with selling occurring almost simultaneously on Chinese markets.
The sheer scale of order flow across both the Shanghai Gold Exchange and the Shanghai Futures Exchange – where combined volume for the day surpassed the notional equivalent of 250 tonnes – led many market trackers to speculate that fleet-footed Chinese hedge funds were behind the move.
Singapore-based futures brokerage Phillip Futures declared “indiscriminate selling by Asian hedge funds at the stroke of the market’s open in Shanghai” as the chief cause of the price fall in a letter to clients.
But the most well known Chinese funds denied involvement, and as futures trading is anonymous, dealers may never know who was buying and selling during those crucial seconds.
Such details often only become available if regulators take action, and amid the regulatory scrutiny following China’s recent equity market tumbles, it’s unlikely any trader or fund will be eager to take credit for setting off another avalanche.
The fact that the selloff occurred while Japan’s markets were closed for a holiday and U.S. and European traders remained on weekend leave served to implicate China-based dealers in the eyes of some market participants.
“That move was aggressive manipulation. Somebody clearly wanted the market lower and timed it very well,” said a gold trader at a bank in Hong Kong, who saw parallels with the way funds have been linked to swings in copper.
Chinese funds such as Shanghai Chaos Investment Co and Zhejiang Dunhe Investment Co were, according to traders, behind falls in copper, one in March last year when the metal fell more than 8 percent in three days, and again in January this year when copper slid almost 8 percent in two days.
“Any Chinese fund wanting to trade on the SGE would just go through the system and place the orders directly ...that fits with what happened on Monday, when the selling activity was very quick,” London & Capital investment director Ashok Shah said.
Sources familiar with both Zhejiang Dunhe and Chaos, and at similar outfits, say that while China’s status as the dominant copper consumer left that market vulnerable to potential influence, China’s traders have no such sway over bullion.
“Honestly, Chinese hedge funds are not as experienced as the overseas veterans and gold is more connected to U.S. dollar movement and well-dominated by Wall Street,” said a trader with a Shanghai hedge fund.
A London-based trader with an investment bank agreed the lead seller might not be from Asia.
“The selling was on Comex and could also be a non-Chinese fund just executing in what they thought was an illiquid timezone to get the biggest move,” the trader said.
Vishnu Varathan, senior economist at Mizuho Bank, added “there’s a good real money presence in centers like Hong Kong and Singapore. But of course, the inside people who knew where the trades were executed probably have their reason for citing Chinese hedge funds, but I don’t think they were alone in this trade.”
Monday’s selloff followed an unexpected update from the People’s Bank of China on the country’s gold reserves, which were up 57 percent from six years prior but well short of expectations.
“I think one of the triggers was some disappointment with the amount of the buildup in China’s gold reserves so in terms of the proximity of that particular trigger and the markets that were open there was some involvement, I’m sure, but it may not be the full story,” Varathan said.
Additional reporting Polly Yam in Hong Kong and Clara Denina in London; Editing by Veronica Brown and Ed Davies