The brutal meltdown of the price of gold on Friday and Monday triggered speculation that a major holder of gold had entered the market as a major seller. Perhaps someone—a bank trading desk, a hedge fund, even a central bank—caught on the wrong side of a trade was forced to sell a large amount of gold, pushing the price down.
"I think somebody got in trouble," Mark Grant of Southwest Securities told "Squawk Box" this morning.
Tim Freeman of Elevation Partners said, "When we see the volumes in gold that we saw, that screams to me that there's a seller of size in the markets that significantly overweighs the buyers."
Call this the Golden Whale theory—the idea that one trader misplayed the market and had to sell off his position when the market moved against him.
No one has been able to pinpoint a major seller, however. Grant said that it could have been Cyprus, Portugal or Greece, or an exchange-trade fund or a hedge fund. Freeman pointed to central banks but didn't have a specific candidate.
Mark Chandler of Brown Brothers Harriman did not indicate who might be the seller but pointed to a specific trade that might have gone wrong. The market believed that the Japanese would become major buyers of foreign assets as their quantitative easing program doubled in size. This would put downward pressure on yen and upward pressure on foreign bonds, stocks and gold, Chandler said.
"What we found out last Thursday when the markets really peaked was that the Japanese were not only not buyers but were actually large sellers of foreign bonds in the first opportunity after QE," he said.
Traders who had shorted yen and had gone long emerging market debt and gold would have had to unwind that trade, which would have pushed yen up and gold down. Coupled with margin calls, a downward spiral in gold could be triggered.
This story line doesn't persuade everyone. One gold trader, who spoke to me on the condition of anonymity, called the Golden Whale theory of gold's selloff "wishful thinking."
"There are a lot of fundamental reasons to sell gold now," he said. "It's apparent that inflation, for example, isn't about to take off—so that wipes out whatever part of the price of gold which arises from it being an inflation hedge."
The trader described gold as suffering from a "lose-lose-lose" scenario. If growth speeds up, financial assets such as stocks will offer a better return. If inflation picked up beyond expectations, bond rates will rise—pushing up the opportunity cost of holding gold. If growth slows, the need to hedge against inflation will diminish.
"It's hard to imagine an outcome that isn't bearish for gold," he said.
Of course, a contrarian would reply that an outcome traders can't imagine is probably the thing that's most likely to happen.