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There was a highly unusual situation in precious metals recently, caused by a perfect storm scenario, an abundance of stop losses and more. This resulted in one of the most volatile moves in gold and silver’s long history – a move that passed in a flash.
The metal flash crash was enough to shake up even the most optimistic gold bugs and silver pendants. However, once you understand the unique factors behind the metal flash crash, the chances of its recurrence are slim. And given the way the metals have already rallied, this could end up signaling a near-term low and resume the gold and silver bull run.
Breaking down the gold and silver flash crash
On a Sunday evening, the precious metal markets opened up worldwide to a nightmarish situation. Gold markets traded around $ 1,800 and then minutes later the high of $ 1,600. All orders on the books between the USD 1,700 range were executed immediately while the price continued to plummet, creating a massive cascade of stop losses in a market that is relatively stable compared to an asset class like cryptocurrency Index trading.
Silver shot down even faster, losing more than 13% from about $ 25 to the low of $ 22. Such a sharp move in gold is shocking enough, but the drastic move in silver that has been amassing steadily for months by the WallStreetBets crowd and other mainstream investors. Silver bars hit a heavy premium, but the cost per ounce of gold fell to a low of a year ago.
The numbers don’t lie. The drop was among the worst metals ever, but what caused it to collapse? According to Marcus Garvey, Head of Metals Strategy at Macquarie Group Ltd, the timing was just right.
Garvey says that holidays in Japan and Singapore contributed to an extremely low liquidity environment that was prone to large movements. The trading pairs XAUUSD and XAGUSD quickly fell below an important technical level, triggering a cascade of stop-loss orders that moved the price even faster. Better than expected job dates in the United States also accelerated the problem. Prices were cut in a flash, but the smelter was bought up just as quickly.
Technical support fallout leads to a cascade of stop-loss
While both major pairs of precious metals have indeed broken a major technical support level, support has stayed below its previous level and a long, V-shaped wick has been left on the price charts. The surge is very similar to the V-shape crypto and stocks experienced on Black Thursday, which resulted in a massive bull market that followed.
After a particularly strong sell-off and the loss of key levels of support, far-reaching lows, markets can reach such oversold conditions that they will soon be reversed. Holding at current support levels could suggest that the downside move, although severe, was a bullish retest that confirmed the former trendline resistance as support.
The trendline forms the top of a bull flag pattern that could indicate gold prices as high as $ 2,600 an ounce. Silver’s goals are less clear, but with some help, the WallStreetsBets crew could get the short squeeze they have been looking for – something they have been successful at in the past.
How crypto could have contributed to the case
Another possible reason for the metal sell-off that could have exacerbated the stop-loss triggering cascade was that more capital from metals flowed into crypto. Much of the downtrend in gold is due to the advent of bitcoin as digital gold and the rest of the crypto market suddenly thriving in the new world after the pandemic.
Almost risk-free economic stimulus money has flowed into stocks and crypto. Bitcoin only grew by a trillion or two which is compared to the total stock market or the $ 10 trillion and then a cap of gold peanuts. With a market cap of $ 10 trillion, each BTC would be worth closer to $ 500,000.
The appeal of how much faster Bitcoin could act against inflation has caused crypto to outperform metals. The willingness to take risks will eventually run out and the gold standard will gain in importance again.
While there is no doubt that Bitcoin can do much of what gold can do, crypto enthusiasts often forget that gold and silver have near-endless industrial uses, demand as jewelry and more, and are among the most trusted and globally respected assets of all Times belong. Metals give investors a sense of security that Bitcoin or Ethereum just can’t.
The gold standard, silver and weather the storm
One thing is certain: the global economy is facing its greatest upheaval of all time. Stimulus money and continued quantitative easing are killing fiat currencies and the dollar, but the gold standard and sterling track record of silver are not responding as usual and that could be due to bitcoin and altcoins.
But even crypto could be at risk if the United States and other superpowers follow China’s lead and launch their own digital currency. Such a situation could lead to Bitcoin and crypto bans. In this case, could gold and silver be the only alternative for failing national currencies and remaining in the grip of the government?
The message here today is that the sell-off in gold and silver, despite the flash crash and ongoing bear market sentiment, could theoretically be the low point for the two shiny stones. And although their reputation has recently been tarnished by the latest financial technology, precious metals should always occupy a prominent place in any investor or trader’s portfolio.
Platforms like the award-winning PrimeXBT offer CFD trading of forex, crypto, stock indices, commodities, metals and more under one roof. The wide variety of trading instruments enables traders to build a portfolio that will survive any coming situation. And with a potential economic upheaval afoot, tools like stop-loss orders, integrated technical analysis software, and more are required for regular success.
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