Gold experiences 'flash crash' overnight. Traders debate what may happen next

Published Mon, Aug 9 202110:22 AM EDTUpdated Mon, Aug 9 202111:38 AM EDT

Gold suffered a "flash crash" overnight, with futures prices dropping $60 in a matter of minutes. Here's what triggered the jarring move and how traders are positioning in light of it. The bullion dropped nearly 5% suddenly to hit a low of $1,677.9 per ounce, its lowest level since March 31. Gold has since recouped some of the losses, last trading about 1% lower on Monday. Gold was already in bad shape before the crash, as it tumbled 4% on Friday to breach a key technical level. The initial selling was triggered by a stronger-than-expected jobs report, which bolstered bets that the Federal Reserve will tighten easy policy soon. Then, the lack of liquidity overnight exacerbated the sell-off and sparked the flash crash. "In response to the strong non-farm data, gold prices broke below their bull-market defining trendline since 2019 — fueling significant stop-outs and melting gold's price," TD Securities commodities strategist Daniel Ghali told CNBC. The slide in gold came as Treasury yields jumped and the dollar rose on the July jobs report. A strengthening greenback tends to hurt the appeal for gold, as it makes it more expensive for holders of other currencies. Meanwhile, rising yields are usually bad news for the non-yielding gold, and the prospect for higher interest rates further caused investors to dump bullion. Silver fell in tandem with gold on Monday, dipping briefly to a low of $22.295, its the lowest level since November 2020. "The catalyst came in the form of the strong non-farm payroll data, which helped spark significant liquidations as the Fed's dual focus on inflation and jobs places additional attention on employment data, with global markets attempting to gauge the taper clock and to set a timer for the Fed's first hike," Ghali said. What's next? Gold eventually found support during last night's sudden drop around $1,680, which is the 61.8% retracement of the 2020 lows and highs (Fibonacci Retracement levels), Oanda senior market analyst Craig Erlam noted. From a technical standpoint, $1,750 marks a major potential resistance for gold, Erlam said, as the commodity struggled to rebound to that level. Ghali of TD said that while the price has somewhat recovered, he expects trend-following funds to add to their net short position in the coming sessions, creating more pressure for the commodity. For macro investors, their investment decision on gold should reflect their outlook on the central bank's next move, Bleakley Advisory Group chief investment officer Peter Boockvar said. Investors should buy the dip if they hold the view that the Fed will fall behind the curve, he saidsaid. "The trade with gold and silver is pretty straight forward here," Boockvar said. "If you believe the Fed will get ahead of the curve or at least in line with it with regards to inflation, then sell. If you think the Fed will crab walk their tightening, then this selloff is a gift. I believe in the latter."

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 31, 2018.

Brendan McDermid | Reuters

Gold suffered a "flash crash" overnight, with futures prices dropping $60 in a matter of minutes. Here's what triggered the jarring move and how traders are positioning in light of it.