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

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While President Theodore Roosevelt’s statement “a date which will live in infamy” certainly does not apply to August 9, 2021, it is a date that professional gold traders will forever remember. Prior to the open of gold trading in New York it was evident in Asia that a major move in gold was beginning to take place. It was a perfect storm in that there was extremely thin liquidity magnified due to the fact that the Japanese markets were closed due to a public holiday and that markets are typically illiquid during the trading session in Asia.

The “Flash Crash” set up

Gold opened at $1807 on Friday, August 8 and selling pressure moved gold prices $63 lower closing at $1764. Selling pressure began in Asia and then London opening at $1764.80 on Monday, August 9. Gold tumbled 4.5% on the Asian open before bouncing 3.6% off the lows into the European open. The net result was a meltdown taking gold from its open of $1764 to an intraday low of $1678.40, an $80 price drop within the span of a single day.

Gold did recoup a vast majority of its intraday decline. And even though gold dropped $60 in a matter of minutes gold prices bounced back from the initial drop and closed at $1726. While there have been other occasions in which gold prices have dropped dramatically, this is the only occasion in which gold dropped $60 in a matter of minutes and substantially recovered over half of the decline in a single day.

The fundamental events that led to the flash crash was a better-than-expected nonfarm payroll report. Economic forecasts were anticipating that 870,000 jobs were added, and the actual number came in at 943,000. Concurrently the unemployment rate moved from 5.7% to 5.4%. And it was widely believed that Chairman Powell would announce the beginning of tapering at the Jackson Hole symposium. Collectively these factors provided a backdrop that made the flash crash possible.

The reason that today’s article is focusing on the flash crash is the low of $1678.40 that was achieved on August 9, 2021. Those low match today’s low of $1678.40 which is why over the last month all of my daily gold charts have identified that price point as a level of major support.

In trading overseas last night market participants actively continued to bid the price of the precious yellow metal lower until it reached a low of $1678.40 and then used that price point as a springboard to move gold prices higher. In fact, as of 5:30 PM EDT gold futures basis, the most active August contract is currently fixed up at $17.30 at $1717.50 after trading to a high of $1719.50.

While the circumstances surrounding the recent selling pressure in gold have more differences than similarities to the economic environment on April 9 on a technical basis the low of the flash crash provided a price point that market technicians used as a support level.

While it is obvious the current selling pressure in gold is headlined driven, and based on fundamental events today’s bounce off of the low of the flash crash confirms that technical levels continue to guide and provide important price points to traders.

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Wishing you as always good trading,

Gary S. Wagner - Executive Producer