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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.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley [4]

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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