While President Theodore Roosevelt’s statement “a date that will live in infamy” certainly doesn’t apply to August 9, 2021, it is a date that professional gold traders will remember forever. Prior to the opening of gold trading in New York, it was clear in Asia that a major movement in gold was beginning to take place. It was a perfect storm as there was extremely little liquidity, exacerbated by the fact that Japanese markets were closed for a holiday and markets are typically illiquid during the trading session in Asia.
The “Flash Crash” configuration
Gold opened at $1,807 on Friday, August 8, and selling pressure pushed the gold price $63 lower, closing at $1,764. Selling pressure started in Asia and then London opened on Monday, August 9, at $1764.80. Gold fell 4.5% on the Asian open before propelling 3.6% of its lows to the European open. The net result was a meltdown where gold went from its opening of $1764 to an intraday low of $1678.40, a price drop of $80 within one day.
Gold has made up for a vast majority of its intraday decline. And while gold fell $60 within minutes, gold prices recovered from the initial drop and closed at $1726. While there have been other occasions when the gold price has fallen dramatically, this is the only time gold fell $60 in a matter of minutes and recovered substantially more than half of the decline in one day.
The fundamental events leading up to the flash crash was a better-than-expected nonfarm salary report. Economic forecasts were for 870,000 jobs and the actual number came in at 943,000. At the same time, the unemployment rate rose from 5.7% to 5.4%. And it was widely believed that Chairman Powell would announce the start of winding down at the Jackson Hole symposium. Collectively, these factors formed a backdrop that made the flash crash possible.
The reason today’s article focuses on the flash crash is the low of $1678.40 that was hit on August 9, 2021. That low price equates to today’s low of $1678.40 and that’s why all my daily gold charts have identified that price as a level of significant support over the past month.
During overseas trading last night, market participants continued to actively bid the price of the precious yellow metal lower until it hit a low of $1678.40, then used that price as a springboard to push gold prices higher. Based on 5:30 PM EDT gold futures, the most active August contract is currently set at $17.30 at $1717.50 after trading to a high of $1719.50.
While circumstances surrounding recent selling pressures in gold differ more than resemble the economic environment on April 9 on a technical basis, the low of the flash crash created a price level that market engineers used as a support level.
While it is clear that current selling pressures in gold are headline-driven, the reflection from the lows of today’s flash crash based on fundamental events confirms that technical levels continue to lead traders and provide significant price points.
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