Gold rose $25 an ounce Tuesday but only managed to recoup a small portion of a wicked two-day slide that wiped out 14% of its value. The speed and depth of gold’s decline drew comparisons to the 1987 stock market crash and prompted veteran trader Dennis Gartman to declare: “We've never… ever… ever… seen anything like what we've witnessed in the past two trading sessions.”
Nomura analyst Tyler Broda echoed those sentiments in a note to clients: "We are running out of superlatives to attach to the gold price move since last Friday."
Gold was down slightly in recent trading Wednesday, suggesting Tuesday’s rally may indeed have been a “dead cat bounce” vs. a sign the selling squall was over.
Related: As Gold Prices Collapse, Investors Seek Answers
As the dust continues to settle after the gold rout, market participants and scribes are still trying to come up with a rationale for the drama. Some of the commonly cited reasons include:
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India’s recent decision to increase its gold import tax to 6% from 3%.
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Reports Cyprus would be forced to sell gold to pay for part of its “bail-in”. (On Wednesday, Cyprus' finance minister Haris Georgiades confirmed his government has committed to sell about 400 million of 'excess' gold reserves.)
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Bitcoin’s collapse, on the theory many of the same investors were long both “alternative” currencies.
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China’s weak GDP report, which prompted a broad flight from commodities, including copper and energy as well as gold.
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Selling begets selling: A lot of 'hot money' has poured into gold in recent years and speculators were quick to rush for the exits when prices started to falter. To be sure, gold's sharp decline is a reminder that momentum is a double-edged sword.
But such explanations miss the forest for the trees, according to Chris Powell, cofounder of the Gold Anti-Trust Action Committee (GATA). The organization's goal is to “expose, oppose, and litigate against collusion to control the price and supply of gold and related financial instruments,” according to its Web site.
“I’m pretty confident it was a central bank operation,” Powell says of the huge drop. “Financial journalism does its best to contrive other reasons but there was too much selling for it to be any source other than an inspiration from central banks.”
According to Powell, global central banks flooded the futures markets in London and New York with sell orders to prevent a short squeeze that was developing. He claims a similar operation occurred in March 1999 when the Bank of England announced plans to auction 58% of its gold.