Gold dive set to hit TFEX hard

Gold dive set to hit TFEX hard

Circuit breaker likely after $230/ounce drop

The Thailand Futures Exchange (TFEX) has eased its block trade requirement for gold futures from the minimum of 100 contracts to one contract to allow investors seeking to unwind their positions to do so more quickly.

The rule will be eased for three days starting Wednesday after gold prices at the New York-based Commodity Exchange (Comex) saw the biggest drop in a single day in 30 years.

Analysts warned the selling pressure could trigger a "circuit breaker", a tool used to handle panic sales.

Investors should tread cautiously and decide whether they still want to maintain their positions, Kesara Manchusree, president, said in a statement after an urgent meeting with brokers.

The meeting was called to decide the best course of action when the futures market opens Wednesday after world gold prices plunged below US$1,400 per ounce during the Songkran holiday.

Prices of gold, silver and oil futures on the first day of trading Wednesday after the Songkran holiday are expected to play catch-up with the sharp fall in commodity prices worldwide.

At the TFEX's close on Friday, the settlement price for gold futures contracts stood at 21,370 baht per one baht weight (15.244 grammes), while gold futures for April delivery at the Comex was at $1,501 an ounce.

But on Monday, gold shed $125 an ounce, its biggest ever daily drop.

A block trade involves a significantly large number of futures being traded at arranged price between parties, outside of the open markets in order to lessen the impact of large trading volume.

TFEX confirmed it would implement the circuit breaker, a measure to stop transactions for 30 minutes to allow investors to digest information and evaluate the situation.

It will be triggered when gold futures prices hit the daily ceiling and floor at 10% of Friday's latest settlement price, she said.

After the market resumes trading, the ceiling and floor will be widened by another 10% of Friday's latest settlement price and so on.

Ms Kesara said she is worried about retail investors who hold 1-5 contracts as they account for 70% of the market's 25,000 accounts in total.

Retail investors who take long position will have to add collateral to avoid forced sale, she said.

Brokers have already talked with large investors about the situation, she said, adding that they number less than 100.

Large investors for gold futures are described as those holding more than 50 contracts.

"It is possible to see gold and silver futures open at floor prices and the circuit breaker kick in one second after the opening bell," Sanya Harnpatanakitpanich, a strategist at Global Securities, warned.

But he said gold futures prices are unlikely to hit the daily 20% floor Wednesday.

In international markets, gold was hovering 2.6% higher at $1,386.15 an ounce at 8pm Tuesday as the near-vertical $230 drop in the past two sessions lured back buyers.

Other precious metals such as platinum and palladium also bounced back along with copper, while silver snapped a four-day losing streak.

Gold's recovery comes a day after it shed $125 an ounce, its biggest-ever daily drop. It has now fallen about 20% this year after an unbroken 12 years of gains and is some 28% down from the September 2011 record high of $1,920.30.

"I think everyone has to take a breath and it's likely that we'll see some rangebound trade. But there are people who still want to sell and they haven't done so yet," said David Govett, head of precious metals at Marex Spectron, told Reuters.

Analysts have cited various reasons for gold's latest slump, including funds switching out of bullion and that other central banks in Europe could use Cyprus's bailout plans to sell excess gold reserves as a reason to sell some of their own holdings, according to Reuters.

The already sharp correction has caused short-term investors to flee the asset.

The SPDR Gold Trust hit its highest ever daily volume on Monday with 92.44 million shares traded. The ETF lost 8.8%.

Oil, another key commodity that has been caught up in the sell-off, also stabilised.

It had fallen below $100 a barrel for the first time in nine months in Asian trading before the rout eased and before a major 7.8-magnitude earthquake in oil exporter Iran triggered additional buying to leave it at $100.13.

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