Gold’s Asian Holiday Trainwreck

This morning, a liquidity black hole, exacerbated by a Japan and Singapore holiday, saw gold plummet $87.00 to around $1680.00 an ounce in a stop-loss and algorithmic selling negative feedback loop. The trigger appears to be a fall through critical support at $1750.00 an ounce after US futures margin servers were turned on at 7 am Tokyo time. There is also likely to be a vast discrepancy in what gold’s actual low was today, as the lack of a centralised trading venue mean a low in one venue could be utterly different to that in another. Think the GBP/USD low post-Brexit vote, or EUR/CHF post-SNB. Sales desks around the world will no doubt enjoy sorting that out today.

Bargain hunters have quickly appeared post the sell-off, and gold and silver have both recovered much of their losses as liquidity proved equally elusive on the way back up. Gold is now just 1.45% lower at 1738.00 an ounce, and silver is 1.95% lower at $23.8775 an ounce. Among the tears, some lucky few have picked up some intra-day bargains today. As the saying goes, one man’s muck is another man’s treasure.

Notably, gold has failed to recapture the critical $1750.00 an ounce region, which now forms initial resistance. That is a negative technical development, and as the dust settles, gold looks to be a sell on rallies. Support is between $1675.00 and $1680.00 an ounce, a series of notable daily lows from both this morning and back in March and April. 

With Fed tapering now much likely to start in Q4 after the Friday Non-Farm Payroll data, strengthening the US Dollar and lifting US bond yields higher, gold faces some severe structural headwinds. As noted last week, and I will bake in the rays of my genius/luck for just a moment, gold had been trading very poorly in the face of greenback strength, even before the Tyson-like knock-out punch of Friday.

With that in mind, gold is unlikely to rally above the $1800.00 region anytime soon but does look overdone under $1700.00 for now. In gold’s defence, the relative strength index (RSI) is entering oversold territory, which usually provides some shorter-term support over a few days. I expect gold to trade in a choppy $1700.00 to $1800.00 an ounce ranges this week.

Failure of the critical $1675.00 to $1680.00 an ounce long-term support zone will be a game-changer. A weekly close under this area will signal more losses targeting the $1500.00 an ounce region.

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