Gold and silver claw back losses after Friday’s stellar jobs report ignited concerns over tighter Fed policy and unleashed a ‘flash crash’

FILE PHOTO: Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London, Britain July 21, 2015. REUTERS/Neil Hall
  • Gold and silver were recovering somewhat on Monday from a flash crash in Asia trading session.
  • Gold fell as much as 4% to $1,707 an ounce, and silver fell 9% to $22.10 at one point late Sunday.
  • Prices are under pressure from growing expectations the Fed will rein in stimulus sooner than seen, given Friday’s stellar jobs report.
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Gold and silver prices on Monday recovered slightly from a sharp slide at the start of Asian trading, but were weighed down by rising expectations that the US Federal Reserve will cut back on its bond buying sooner than expected.

Spot gold prices declined 4% to $1,707 per ounce late Sunday, while spot silver prices dropped 9% from $24.34 to $22.10 an ounce.

Both metals are paring losses after the “flash crash”. Gold was trading at $1,748 per ounce at 4:55 a.m. ET Monday, down 0.8% on the day and at its lowest level since April. Silver was down 1.7% at $23.90 an ounce after touching its lowest level since December.

The flash crash occured after gold broke through a technical support level and triggered stop-loss orders. These orders to sell kick in once an asset hits a certain price, and they had an impact on a day of low liquidity in Asia due to holidays, some analysts said.

“With liquidity at zero to non-existent (on Monday), it is clear that when gold moved through $1,750 an ounce, it set off a cascading negative feedback loop of stop-loss selling into a market with no bids,” said Jeffrey Halley, a senior market analyst at OANDA.

Speculation among traders about the flash crash pointed to an order to sell $4 billion in gold futures, according to Marshall Gittler, head of investment research at BDSwiss. China, looking to drive up the US dollar, or short sellers were behind the order, according to the chatter.

While the precious metals are recovering somewhat, seen by analysts as likely due to bargain hunters entering the market, they remain under pressure after a stellar July US jobs report on Friday.

This improved outlook, alongside rising inflation, is seen as increasing the chances the Fed will start to narrow its stimulus support sooner than previously seen. Comments from Dallas Fed President Robert Kaplan last week that the central bank should start tapering asset purchases soon – and gradually over about eight months – helped raise expectations.

Gradual slowing of the Fed’s large-scale asset purchases is now now very likely to start before Christmas, according to OANDA’s Halley.

Read More: Legendary technical analyst Katie Stockton shares her secret sauce for spotting turning points in markets with 3 of her top indicators – and why the charts signal ether is set to crush bitcoin

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Gold prices have jumped more than 10% since the start of April amid a weaker dollar and falling bond yields

Gold bars
  • Gold prices have risen more than 10% since the start of April to near $1900 per ounce.
  • OANDA’s Sophie Griffiths says the rise is a result of “falling Treasury yields and a softer tone surrounding the greenback.”
  • “Speculative financial investors are also betting increasingly on rising gold prices,” according to Commerzbank.
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Gold prices have jumped more than 10% since the start of April to nearly $1,900 per ounce. Since the start of May alone, gold is up roughly 7%.

According to Sophie Griffiths, a market analyst for the FX solutions provider OANDA, the rise in prices is a result of “falling Treasury yields and a softer tone surrounding the greenback.”

Griffiths also said that a recent cryptocurrency sell-off could have pushed investors toward gold amid inflation concerns.

According to Cameron Brandt, the Director of Research at EPFR, an Informa Financial Intelligence business, flows into gold hit 19-week highs in the third week of May as well.

A new research report from Commerzbank also shows gold ETFs tracked by Bloomberg have registered almost continuous inflows for the last 2.5 weeks.

Daniel Briesemann, a precious and industrial metals analyst at Commerzbank, said in the new report that “speculative financial investors are also betting increasingly on rising gold prices.”

Traders have expanded their net long positions in gold for the third week in a row and net longs are now 82% higher than they were at the start of May, according to data from the report.

Briesemann said that he believes there is still “upside potential” in the gold market due to the Fed’s insistence on maintaining “ultra-expansionary monetary policy.”

He also said gold could see support from increased Chinese government buying throughout this week.

Despite the recent rise in gold prices, the precious metal still trades below where it did nearly a decade ago in September of 2012. Since the end of 2018, however, Gold is up roughly 40%.

Gold isn’t the only precious metal on the move, either.

Copper prices are up some 87% over the past year. The commodity has made a slight retreat over the past two weeks, but experts are still calling it the new oil and making predictions for the price to hit $15,000 per ton by 2025.

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Gold prices are at a 3-month high relative to bitcoin as the Fed continues monetary-stimulus efforts

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  • Spot gold rose to $1,853.12 an ounce on Monday, the highest point since February 10.
  • Gold’s price relative to bitcoin is now at a three-month high as the cryptocurrency sells off.
  • Investors are flocking to gold amid fears of rising inflation and a weakening dollar from the Fed’s stimulus efforts.
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Gold prices rose to a three-month high Monday morning as investors have flocked to the safe-haven asset amid continued Federal Reserve stimulus that’s weakened the dollar.

Spot gold rose 0.5% to $1,853.12 an ounce on Monday, reaching the highest point since February 10, according to Bloomberg. The price movement came as bitcoin sank to nearly $42,000 after Elon Musk suggested Tesla may sell its holdings.

The ratio of gold’s price relative to bitcoin is up to the highest point since early February. One Bitcoin is now equivalent to about 23 ounces of gold bullion, down from a record of 36 ounces in April, according to Bloomberg data.

It’s likely that many investors may be buying gold as an alternative to a weakening dollar. The Federal Reserve has promised to keep interest rates near zero for the foreseeable future, which could weaken the US currency and strengthen the case for gold.

Gold has also been historically viewed as a hedge against inflation, and Wall Street has grown increasingly concerned that inflation will overheat as the US emerges out of the pandemic.

Cryptocurrency bulls argue that bitcoin’s fixed supply makes it an even better hedge against inflation than Gold, but recent price movements in both assets question this narrative.

Last week, when key inflation data came in significantly higher than expected, bitcoin fell 7% in one day, moving in the exact opposite direction as one would expect an inflation hedge to move. Bitcoin experts say they’re not concerned about day-to-day movements in the historically volatile cryptocurrency’s price.

Read more: UBS says to buy these 42 ‘new momentum’ stocks that are poised to outperform in a rising inflation environment

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