Volatility in Gold Worries Investors But Eastern Demand Stays High

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"It's forced liquidation and this money flow has been hitting every commodity," said Bill O'Neill, managing partner of New Jersey-based LOGIC Advisors. "You look at these markets, whether it is agricultural or industrial commodities - we are not trading on fundamentals, we are trading on money flow," O'Neill said.

Investors who would normally seek a safe haven in gold in what is one of the worst financial crises in history are shunning the precious metal because of the market's extreme volatility. But bullion prices have dropped so sharply that buying is active in the Asian physical market, and that could bode well for gold prices in the weeks ahead.

...Veteran gold traders said they have never seen such extremely wide daily ranges, which kept both institutional players and shorter-term investors at bay. Several sessions in the last two months saw daily price fluctuations of close to or more than $100...

"It's forced liquidation and this money flow has been hitting every commodity," said Bill O'Neill, managing partner of New Jersey-based LOGIC Advisors.

"You look at these markets, whether it is agricultural or industrial commodities -- we are not trading on fundamentals, we are trading on money flow," O'Neill said.

Implied volatility -- the so-called fear gauge and a measure of the expected gold futures movement given an option price -- has jumped fourfold to its highest level in at least six years above 50 percent in October, compared with 39 percent at the end of the third quarter. Historically, it averaged 12.5 percent.

"Although gold price volatility continued to go up, you need to put this into the context of what's going on elsewhere," said Natalie Dempster, head of investment for North America at the World Gold Council, a trade group funded by the gold mining industry.

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