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Gold’s Flash Crash: Calm After The Storm Or More To Come?

By Investing.com (Barani Krishnan/Investing.com)CommoditiesAug 10, 2021 03:01AM ET
www.investing.com/analysis/golds-flash-crash-calm-after-the-storm-or-more-to-come-200597492
Gold’s Flash Crash: Calm After The Storm Or More To Come?
By Investing.com (Barani Krishnan/Investing.com)   |  Aug 10, 2021 03:01AM ET
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Has gold dropped as much as it could pre-Jackson Hole?

Some charts indicate that possibility, and the more than 24 hours that have passed since the Asian flash crash—with no repeat—have helped gold longs rebuild confidence as they try to make their way back to mid $1,700 levels.

Yet, the calm after a storm can sometimes be deceiving—especially if another hurricane is headed your way. And that should be the concern of anyone buying the dips in gold

If the objective is to clear out with tight, narrow gains, then fine. But, if it is to recapture mid-$1,800 levels with loose stop losses along the way, then the window for return could be considerably longer, and the risk considerably higher.

Whatever the case, with more talk of a Federal Reserve stimulus taper at any time of the day now, compared to a Fed stay on asset buying and rates, gold at best could be soft and range-bound in the countdown to the central bank’s Aug. 26-28 Jackson Hole, Wyoming symposium on monetary policy.

Spot Gold Daily
Spot Gold Daily

All charts courtesy of by SK Dixit Charting 

Chartist Ross J Burland said in a blog post on FX Street on Monday:

“From a daily perspective, the price has corrected as hard as it fell and this gives rise to come, meanwhile, to-ing and fro-ing in the low to the middle ground of the $1,700s with a focus on the 38.5% Fibonacci and 50% mean reversion areas.”

Thus, the spot price of gold has overshot technical supportive structures on a weekly basis and cleared the way for “a sustained move in on the higher third of the $1,600s,” Burland said.

Gold Weekly
Gold Weekly

Gold was relatively steady in Monday’s morning trade in Asia before suddenly plunging almost $75 from Friday’s close of $1,762.69 to $1,688.13 over a matter of minutes. Since then, it has firmly held above $1,700, mostly boxed in a $1,730-$1,740 range.

Fundamentally, gold’s return to $1,600—or even lower—cannot be discounted as we get nearer to Jackson Hole amid the incessant invoking of taper and rate hike language by Fed officials in their daily speaking engagements.

Atlanta Fed President Raphael Bostic’s comments, particularly, stood out Monday for its pointed urgency in pushing for a tightening.

The Fed could begin tapering between October and December the $120 billion it has been plonking monthly into bonds and mortgage-backed securities to support the COVID-restrained economy, Bostic told a live-streamed event. This is especially so if jobs growth over the next couple of months can match July’s near one-million, the Atlanta Fed chief added.

If such a wait-and-see approach is indicated and adopted at Jackson Hole, then gold prices may not go into a free-fall, but rather decline based on the strength of the employment and economic data at hand. 

Even between now and the next couple of weeks, the yellow metal may stay range-bound rather than plunge to $1,600 levels.

Burland thinks similarly, saying:

“It may take several weeks for the bears to build up enough of a support base in order to get there again from this juncture.”

Sunil Kumar Dixit, who heads Kolkata, India-based SK Dixit Charting, says so long as gold holds above the 100-week Simple Moving Average of $1,737, recovery from the lows will likely take prices higher, from $1,758 through $,1770-$1790-$1803 and $1,815.

“Though the possibility of a horizontal support base appears weak, some bounce back is likely,” Dixit said. “Bulls are likely to wait for gold to take on the $1,832 barrier for further upside.” 

But there was just as much risk of the market going the other way, given the dynamics of the potential Fed tightening, Dixit cautioned.

“A weekly closing below the 100-day Simple Moving Average of $1,737 would expose the metal to the March low of $1,676 and extend losses to $1,585,” he said.

This was because on gold’s monthly chart, there seemed to be an alignment to the June 2020 low of $1,670, the March 2021 low of $1,676 and the latest low of $1,684, Dixit added.

Gold Monthly
Gold Monthly

Others believe Fed noise, along with the ramping Dollar Index and the relative strength of the 10-year Treasury note, will set the agenda for gold’s downside.

Dhwani Mehta, another chartist who blogs on FX Street, said the so-called Technical Confluences Detector she tracks shows gold is challenging critical resistance at $1737.

“On rejection at the latter, sellers could return, looking for a target at the previous high at $1,733. If the downside pressure intensifies, then a test of the Fibonacci 161.8% one-month at $1,725 will be inevitable. Further south, the Fibonacci 38.2% one-day at $1,718 will be threatened.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

Gold’s Flash Crash: Calm After The Storm Or More To Come?
 

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Gold’s Flash Crash: Calm After The Storm Or More To Come?

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Comments (12)
Rff Fff
Rff Fff Aug 10, 2021 8:38AM ET
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Tomorrows data extremly in high importance another moving..
Rff Fff
Rff Fff Aug 10, 2021 8:34AM ET
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Tomorrows cpi will give us extremely high importance clue..if data will be more than prediction who never hold it back from high speed down..if alike prediction nothing will change ..if worst than prediction gold will take some support
Azli Invest
Azli Invest Aug 10, 2021 7:38AM ET
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Get ready to see GOLD at 1450 if 1670 support break1750-1765 Support Become Resistant better to be break otherwise we as GOLD manipulator buy a lot at dip.
Barani Krishnan
Barani Krishnan Aug 10, 2021 7:38AM ET
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Let's see. I think there is some inherent value between the 1700 and 1600 levels.
Dividend Collector
Dividend Collector Aug 10, 2021 7:25AM ET
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I believe we have already seen the lowest price for gold this year in March.... I am positive that gold will soon be on mid's 1800
Barani Krishnan
Barani Krishnan Aug 10, 2021 7:25AM ET
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Hope it works out for you, mate.
Cosmic Dust
Cosmic Dust Aug 10, 2021 7:20AM ET
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IMO, gold price is heavily manipulated. No doubt in my mind the Fed is behind it.
Barani Krishnan
Barani Krishnan Aug 10, 2021 7:20AM ET
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Absolutely, they are. The "unseen" hand.
Cosmic Dust
Cosmic Dust Aug 10, 2021 7:20AM ET
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Barani Krishnan  Cryptos are not main stream yet, but gold has been and is. The Fed will control everything that makes king dollar look bad. Probably keeping gold price in check is the Fed's 4th mandate (in the name of public interest). Who knows.
simone scelsa
simone scelsa Aug 10, 2021 7:20AM ET
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What of the tools at their disposal will the FED use to directly manipulate the gold price? I doubt this is the case
Matthew Freeman
Matthew Freeman Aug 10, 2021 7:15AM ET
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C’mon, this had nothing to do with Asia trading and you know it. I don’t remember who said it, but a commodities trader recently said, “In twenty years of commodity trading, I’ve never seen such a blatant act of market manipulation.” That pretty much sums it up. Sell billions worth of contracts, suddenly, at the Sunday open, when volume it at the lowest? No one wanting to preserve profits would do that. Wasn’t JPM just fined $900 million for manipulating precious metal future prices? They’re not alone. You know it. Have the guts to call it what it is.
Barani Krishnan
Barani Krishnan Aug 10, 2021 7:15AM ET
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Hello Matthew, I have cited JPM (and Nova Scotia) multiple times in my previous copy and comments for their role in "fixing" gold below where it should be. Back to the Asian flash-crash, it is what it is; i.e. occurring during the Asian session, hence the characterization. I'm totally with you on how it happened -- the dump in extremely thin trading that creates a hyper move down. But this is what the so-called bullion banks have been doing, aiding the Fed's game of keeping the dollar steady and the printing presses running at full steam.
SunilKumar Dixit
SunilKumarDixit Aug 10, 2021 7:15AM ET
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Matthew Freeman. Manipulation by institutions JPMorgan and the likes is an open secret since quite a while and rampant with government patronage, all just to keep the dollar afloat. NFP positive numbers are improving but can hardly be construed as global economic recovery signal on a macro spectrum. Worrisome factors continue to loom large. Ever mounting US debt and incessant printing of dollar bills culminating in currency debasement and baffling inflation in the offing. Stocks entering a bubble phase where a crash eventually might be fatal. Keeping Gold suppressed to support dollar can have its natural repercussions over time.
Adam Money
Adam Money Aug 10, 2021 7:15AM ET
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@ Matthew...totally agree! If you noticed this happens on Chinese holidays in the past but never like that... and it was Japanese bank holiday. I honestly cant find another 15 min candle like that in chart history!!
Heine Pedersen
Heine Pedersen Aug 10, 2021 7:12AM ET
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Waiting CPI data tomorrow
Barani Krishnan
Barani Krishnan Aug 10, 2021 7:12AM ET
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That would be the thing to watch, yes.
mohammad usama
mohammad usama Aug 10, 2021 7:07AM ET
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The probability gaht the fed tightens is extremely low and theyre not looking to drop their “transitory” rhetoric anytime soon
Barani Krishnan
Barani Krishnan Aug 10, 2021 7:07AM ET
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Yes, Mohammad. "Talk is cheap", as the saying goes :)
Fishani Banda
Fishani Banda Aug 10, 2021 7:01AM ET
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fishani BANDA
Dan OGrady
Dan OGrady Aug 10, 2021 5:41AM ET
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The odds of the Fed actually tapering are 0%, the odds of non stop jawboning of tapering by Fed cronies and producing fantasy labor indicators? 100%
Barani Krishnan
Barani Krishnan Aug 10, 2021 5:41AM ET
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Ha ha ... totally with you on the jawboning bit, Dan. I believe Fed districts get paid for these speaking engagements and that's why these Fed folk are so happy to go around, giving their 2 cents everywhere. As they saying goes, "talk is cheap". Powell, Yellen and Biden get to decide larger policy and they've been chorusing in tune about "transitory" inflation.
 
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