Gold's Mysterious Sell-Off Shrugged Off By Wall Street

At one point Wednesday the price of gold for February delivery plunged 1.5 percent in just a few minutes, falling $36 to $1,705 per ounce before closing the day with a $26 loss.

Initially, there was talk among traders that there had been a so-called fat finger, industry jargon for human data-entry error that -- if severe enough -- can lead to a temporary stop in trading until the mistake is rectified. 

But on Thursday the consensus appeared to be that the volatile drop was just a fluke, or perhaps a correction, one that came only two trading days after gold made a similar gain on unexpected good economic news out of Europe that pushed the dollar down against other currencies. When the dollar falls, it usually boosts gold as investors rush to the traditionally safe investment. Last Friday gold for February delivery gained  $23 per ounce.

“Other than a dip in the (value of the euro on Wednesday), it was hard to identify a cause that triggered the sell-off,” said HSBC economist James Steel in a research note on Thursday. “The inability of bullion to recover from the losses sustained from the sell-off leads us to believe that the plunge was not due to a ‘fat finger’ trade. We believe that such significant liquidation is unlikely to be repeated, and that gold prices will tend to stabilize."

As December futures contracts on the commodities exchange in New York were set to expire on Wednesday, some floor traders decided to sell rather than carry their longs. 

If anything, Wednesday's stomach-churning plunge may even augur strength for gold.

"All in all, gold is temporarily wounded, nothing more, nothing less," UBS analyst Edel Tully wrote in a note Thursday. "Despite all the selling yesterday, which was largely concentrated on the floor, we observed very little client appetite to follow the trend. That is a positive indicator to remember, in our opinion."

In Thursday afternoon trading, gold for February delivery rose $8.70 to $1,727.50.