The price of gold Analysis and news
- Gold Flash Crash: How It Happened
- What follows is not so precious metal
Gold Flash Crash: What Happened
An exciting start to the week, with gold falling 4.5% in the open field in Asia before falling 3.6% in the open field in Europe. The transition overnight was a continuation of last week’s soft closing of the background program in response to very strong ones NFP report.
In a nutshell, the NFP title was overprinted with expectations of 943k vs. 870k and also much better than a poor ADP report, further highlighting the weak link between ADP and NFP. (Like I said on Friday,. The ADP report considered it appropriate to set the bar low, surprisingly low). In addition, the unemployment rate fell by 0.5 percentage points to 5.4 percent, the expected 5.7 percent, reaching a new low cycle. This, in turn, increases the likelihood that Chair Powell could use the Jackson Hole Symposium at the end of the month to signal a narrowing signal, which would be quite appropriate as it would mark the anniversary of the announcement of the average inflation target.
Returning to the overnight crash, it is important to remember that markets are usually the most illiquid during an Asian session, as demonstrated in recent years by the Japanese yen in 2019 and the pound in 2016. The thin liquidity conditions would have been further exacerbated by the fact that Japanese markets were closed due to the public holiday. Keep in mind that this was the first opportunity for leveraged Asian traders to respond to Friday’s NFP report, so I would not consider the move too much in response to new information and rather a continuation of Friday’s response. The chart shows that the gap of 1760, which has been central in recent months, triggered stops below, prompting large sales orders to lead gold to an annual double bottom.
Gold price chart: 10-minute schedule
What’s next for gold?
Given that gold has recovered $ 65 from low levels, the aforementioned $ 1,760 level is a key area to look at where failure to break above keeps (not so much) the direct pressure of the precious metal down. Over 1760 there is resistance from 1790-1800.
Elsewhere, with Fed speakers gaining attention, the main highlight of the economic calendar is the US Consumer Price Index report, where a significant headline hit could push gold even lower. I now realize that what I am saying contradicts the common belief that gold is an inflationary hedge, but if inflation were to exceed expectations, it would probably increase the stakes of tighter monetary policy, which would increase USD and yields, which in turn would weigh gold.
Gold price chart: daily schedule