Gold bounces off $1678; the low of the August 2021 “Flash Crash”

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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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; nor Kitco Metals Inc. neither the author can guarantee such accuracy. This article is for informational purposes only. It is not a request to exchange commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article assumes no liability for loss and/or damage arising from the use of this publication.

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