Gold’s Flash Crash Subsides as Silver Claws Back Morning Losses


Gold recovered from a flash crash that saw prices drop $60 in minutes on bets the Federal Reserve may soon start paring back its massive monetary stimulus.

Spot bullion fell more than 4% and silver slumped as much as 7% as the selloff following Friday’s better-than-expected employment figures initially accelerated at the start of Asian trading. Both markets swiftly pared losses, and were down less than 2% by midday in Singapore.

Gold’s been losing ground on investor concern that an improving economy and rising inflation will spur the Fed to pull back on its unprecedented support. American employers added the most jobs in nearly a year in July and the unemployment rate declined faster than forecast. Dallas Fed President Robert Kaplan’s comments that the central bank should start tapering its asset purchases sooner rather than later, and in a gradual manner, further fanned expectations that stimulus will be reined in.

The jobs data “beat expectations by a mile last week, which led to both gold and silver selling off into the close. This morning we are seeing the overhang of that as perhaps those traders a bit late to the party are panic-selling the open,” said John Feeney, business development manager at Guardian Vaults. “With low liquidity at this time of the week combining with a large number of stop losses being triggered we have seen a volatile open to start the week.”

Bullion was down 1.4% at $1,738.26 an ounce after earlier touching its lowest since March, and coming close to its lowest in more than a year. In the futures market, over 3,000 contracts changed hands in a one-minute window — equivalent to over $500 million notional value — as activity surged in a typically quiet trading period. Spot silver was down 1.7% at $23.9064 an ounce.

It’s “a bit too early to tell, but this sort of capitulation usually coincides with a significant low in the market,” said Feeney. Though “we are seeing demand for physical metals coming through this morning on the buy side.”

As well as the outlook for interest rates, gold has been weighed down by a recent strengthening in the dollar and a surge in equities.

In other markets:

Palladium was steady, while platinum fell 0.9%.
The dollar was little changed, while yields on 10-year U.S. Treasuries rose on Friday.
Nickel and copper fell on the London Metal Exchange as the outlook for the Fed tapering curbed demand.