Gold prices are sharply lower in early trade this morning following a “flash crash” of sorts seen last night.
Last night, the gold market plunged-at one point falling several percent as Asian investors reportedly sold the yellow metal. While China was open for business and doing lots of it, Japan was closed for a holiday. This lack of liquidity may have been a large factor in gold’s dramatic dip. While gold is currently trading back above the $1100 level, the metal did see prices fall to around the $1080 level last night. Prices are now at multi-year lows, indicative of the ongoing lack of bullish inputs.
Last week, the gold market got hit from all sides. Federal Reserve Chairwoman Janet Yellen reiterated the central bank’s plans for a rate hike this year. The dollar continued its recent ascent back to levels seen at the beginning of June and the economic data released was positive.
It appears that investors remain quite comfortable with risk assets, and are seeing less and less reason to hold perceived safe haven assets like gold or silver.
While investor psychology can turn on a dime, risk appetite appears to be robust following the recent Greek bailout deal and calmer Chinese equity markets.
It remains to be seen, however, if the Greek Government will be able to enforce all conditions of its bailout agreement. It also remains to be seen if the volatility in China’s stock market has subsided or if there is more potential volatility and selling to come.
Both of these situations could potentially put a halt to gold’s downside if investors shun risk in favor of perceived safe havens.
For now, however, gold is lacking any significant bullish catalyst. The gold market may have now begun a significant leg lower in prices, a move that could potentially see the price of gold fall to under $1000 per ounce.
The dollar will also likely keep the selling pressure on gold and precious metals for the time being. The dollar index has been trending higher once again, and appears set for additional upside. A move above the late-May high around $98.29 could potentially set the stage for the greenback to test the $100 level.
A move above the March highs around $101.61 could pave the way for another run higher in the dollar. Such dollar strength would likely keep any buying interest in gold at bay.
While gold is clearly trending lower, it has become oversold by some measures and a bounce in the near future may be likely. That being said, any rallies in gold will likely be sold into until proven otherwise.
