Recap: Large Sell Order Halts Gold Market, Jobless Claims Not What They Seem

GOLD

On Thursday, gold (NYSEARCA:GLD) futures for December — the most active contract — dropped $33.20 to close at $1,330.60 per ounce, while silver (NYSEARCA:SLV) futures plunged $1.02 to finish at $22.15. It was gold’s lowest close in about one month.

Both precious metals fell sharply as jobless claims in the United States declined to their best level since April 2006. According to the U.S. Department of Labor, the number of first-time claims for unemployment benefits dropped by 31,000 to a seasonally adjusted 292,000 for the week ended September 7, 2013. Economists expected a reading of 330,000 claims.

However, the better-than-expected report confounded analysts who were expecting a modest increase. In fact, the drop was exaggerated if not completely wrong. The problem is that decline was likely caused by two states — one big and one small — that initiated a computer upgrade preventing officials from processing all the claims they received during the week due, thus artificially lowering the number of claims.

Adding to the confusion, it appears as though one large sell order broke the gold market for about 20 seconds at 2:54 a.m. Eastern Time. Approximately 2,000 gold futures contracts traded in one second and caused a circuit breaker to halt electronic trading on the Globex. It was the longest halt that Nanex – creator of technology that powers the delivery of market data — has ever seen in a widely traded futures contract. As the chart below shows, gold never recovered from the drop.

Screen Shot 2013-09-12 at 1.44.06 PM

In afternoon trading, shares of the SPDR Gold Trust (NYSEARCA:GLD) fell 2.6 percent while the iShares Silver Trust (NYSEARCA:SLV) dropped nearly 5 percent. Gold miners (NYSEARCA:GDX) Newmont Mining (NYSE:NEM) and Yamana Gold (NYSE:AUY) both declined more than 3 percent. First Majestic Silver (NYSE:AG) shares plunged 6 percent.

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Disclosure: Long EXK, AG, HL, PHYS