The ghosts of January past return: Gold
Tony Sycamore January 18, 2021 3:40 PM
After a quiet weekend on the news front, expectations this morning for an orderly start to the week were disrupted by a $20 plunge in the price of gold in less than a minute.
The sell-off, estimated to be on the equivalent of around 3000 Comex gold futures contracts took place at around 10.34 am Sydney time or at about 6.34 pm ET on a Sunday evening. Exacerbating thin volumes typical at this time of the day and week, the Martin Luther King public holiday in the US.
Although we will never know for sure, due to the unusual timing of the move, my guess is the sell-down was the result of an execution error, triggering stop-loss orders placed below last Friday's $1823 low. Adding to the impact, algorithms using correlation analysis, arbitrage, and linked orders then triggered stops in gold's high beta cousin, silver.
Exactly two weeks ago we wrote about the possibility of this type of move during January, in an article on Silver here. In the article, we highlighted a 500 pip sell-off in AUD/JPY that occurred on the 5th of January 2019, before an equally speedy recovery. Very similar to the type of price action viewed in gold this morning.
Typically a speedy recovery comes as the error is hastily covered in the market. If 3000 contracts have been sold by mistake, 3000 contracts will need to be covered and twice that number if the original order was meant to be a buy order!
In terms of what these types of moves do to the outlook, I tend to look through them. As such following gold's rejection of the $1960/70 resistance zone in early January, gold needs to avoid falling back below this morning’s breakdown level $1820/15 area.
Otherwise, the risks are for a retest and break of the November $1765 low. Keeping in mind, a break and close above resistance $1960/70 area is required to confirm the uptrend has resumed and expectations of a retest of the August $2075 high.
Source Tradingview. The figures stated areas of the 18th of January 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.