On Friday, there was a flash crash in the gold market. What happened and what does it mean?
Friday was a very interesting day for the gold market, as the price of gold plunged almost $10 after 4 million ounces of the yellow metal were sold in 15 minutes, as one can see in the chart below. Indeed, after 11a.m. almost 40,000 contracts, each for 100 ounces of the metal, were traded on Comex within a quarter of an hour, triggering a sell-off.
Chart 1: Gold prices from November 8 to November 10, 2017.
The drop was surprising as no new bearish information hit the markets. On the contrary, the consumer sentiment index declined below expectations.
Friday’s price action was not the first flash crash in the gold market this year. In June, the prices of gold plunged almost $20 after 1.8 million of ounces of the yellow metal were sold in one minute. And in July, silver plunged over 10 percent in less than a minute. It seems that investors have to get used to such flash crashes from time to time.
Friday’s move was more modest than the summer plunges, but it also was mysterious. We can only guess what happened. It seems that there was a big sell order from a major fund that caught the market off guard and triggered some sell stops. In other words, it did not have to be manipulation. Someone just had a position huge enough to move the market. Indeed, flash trades do not send gold prices in just one direction – last month, contracts for more than 2 million ounces of gold were traded in just five minutes, sending prices north.
The plunge should not fundamentally alter the outlook for the gold market. The price of gold will remain sensitive in the short run to prospects of U.S. tax reform and expectations of the Fed’s monetary policy. Stay tuned!
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.