Gold flash crash is a good/bad news?
“Much can be gauged by the relationship between stocks (which gain on optimism) and gold (which gains on pessimism),” said John Authers on Bloomberg. A rising gold price is a sign of concern about currency debasement and inflation. Gold bugs invest in the precious metal as a hedge against central banks losing control, so what should we make of this week’s “gold’s flash crash?” The bad news for gold bugs would seem to indicate better economic news.
Gold, oil and the dollar
Gold, traditionally considered a haven metal for many investors, has fallen in tandem with the overall rising trend this year. Traditionally seen as an alternative to stocks and bonds because it is not tied directly into their performance but still does well when they do poorly due to its price-stability property (which makes it great during times of economic crisis!), gold’s 8% drop can be attributed primarily to higher bond yields and currency strength–since these two factors have been dominating markets recently and make holding onto physical gold less appealing than before. The strong US dollar is making the price of crude oil jump for those with other currencies, since it makes their money less valuable.
The volatile price of oil took another hit this week due to a global economic slowdown that’s been exacerbated by fears over the Delta virus variant, which has caused demand in Asia to plummet. The world’s biggest importer and most affected region is China, who also suffers from its worst Covid outbreak since the start of pandemic–it doesn’t help with their economy when people are afraid about where they will work or consume goods.
The price for Brent crude at $65.33 fell more than 4% on Monday after being undermined by concerns around both continued slowdowns in economies worldwide as well as worries surrounding an increased risk of contracting disease through consumption decline.
Loss of faith
The strong US jobs data is what caused the gold prices to plummet. The poor liquidity of August also played a role as well, but it was not just those two factors that led to this drop in price–technical factors and other markets were at play too. I don’t know about you, but I have been waiting for the perfect time to buy gold. The US Fed just gave us a sign that it’s finally happening! A recent Bloomberg article says that investors are already starting to show their true colors and dump all of their ETFs in favor of another investment. It seems like people might be getting fed up with volatility lately so they’re looking into other ways to grow money instead (like stocks). And as soon as the market blows out again from this new development, we’ll see prices skyrocket yet again – at least according to experts on CNBC who say “that could spell disaster.”
Given the widespread loss of faith, “it’s hard… to be bullish for gold at the moment”, said Marcus Garvey, head of metals strategy at Macquarie. Only the brave will buy the dip.
Hope the coming days are better!!