Margin calls in the Chinese stock market could be an overlooked catalyst for the sell-off in gold, which hit a new five-year low this morning, Dennis Gartman, editor and publisher of the Gartman Letter, said.
Last year, Gartman wrote extensively on China allowing gold to be used as a margin for stock trading and warned that margin calls could equally affect stocks and gold during a rapid decline.
The Shanghai Composite index sustained heavy losses at the beginning of the month in a short period of time that it led to the Chinese government suspending trading for roughly 90 percent of the stocks on the exchange.
“Would that we had remembered our own admonition for that is precisely what has taken place; gold and stocks have been pitched over in China,” Gartman said. “Hence we shall watch for signs that the Chinese stock market has turned for the better as a sign that the pressure on gold will end.”
Earlier, spot gold tumbled to a fresh five year low of $1,077.50. The most active contract on the Comex division of the New York Mercantile Exchange was last down $12.10 to $1,082.0 per ounce.
(Editing by Tom Jennemann)
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