What some traders described as a “mini flash crash” in early Monday trading in Asia drove the price of gold to its lowest level in five years, falling below $1,100 dollars an ounce.
The spectacular plunge saw 30 billion dollars’ worth of short selling occurring within half an hour amid what are known as stop-loss selloffs: orders entered into the market automatically executed when a specific price is reached.
“In the physical market this would not be possible because that would consume a whole lot of physical gold. But in the futures market, because it's all digital, as long as you find a buyer to bid for it then that would be possible,” said Luke Chua, sales and operations manager at Bullion Star, a precious metals dealer in Singapore.
The speculative selling reportedly began in Singapore.
Selling also quickly exploded on the Shanghai exchange, according to data compiled by financial news agencies Bloomberg and Reuters.
A desire to dump gold appeared to have been exacerbated by a perception that concerns about the Greek economy and the volatile Chinese stock markets have somewhat eased.
Mystery surrounds China's possible direct involvement in Monday's gold short selling.
“There's no direct evidence so this is just still speculation on the market,” Chua told VOA.
On Friday, China, the world's largest gold producer, announced its reserves had increased by 59 percent to 1,658 tons as of the end of June.
“That should drive the price up but that's not what we're seeing in the market these few days. And the reason for that is because, currently, the price level is heavily driven by the futures market and not the physical market,” said Chua.
Some analysts noted China's buildup of gold reserves was smaller than expected but acknowledged that does not fully explain the intense speculative selling in thin, early Monday morning trading.
Markets were closed in Japan Monday for a holiday, which reduced trading volume, sending prices lower as trading continued.
"It was down to speculation here, someone taking advantage of the low liquidity environment," Victor Thianpiriya, commodity strategist at ANZ, told reporters.
Gold is now down about six percent on a year-to-date basis.
Monday's gold plunge also affected other precious metals with platinum dropping as much as five percent at one point to its lowest level since February, 2009. Palladium dipped to its lowest price since October, 2012.
Precious metals traders say they expect a ceiling on gold around its current level or that it could move still lower due to an expected interest rate hike later this year by the U.S. Federal Reserve. That would prompt many investors to see U.S. bonds a better bet than precious metals.