After an overnight flash crash of sorts, the gold and silver markets are trying to stabilize in early Monday trade. Following Friday’s large slump, both gold and silver opened Sunday evening sharply lower, with gold falling nearly $100 per ounce and silver declining by over $1.30 per ounce. The metals have been recovering ground since, however, and are now down $36 and $.98 per ounce in early morning trade.
The metals are likely still feeling the effects of Friday’s stronger than expected jobs data which showed much larger jobs growth than anticipated. The jobs figures pushed stocks to or near record highs while also sending a sell signal in treasuries that pushed yields higher. The jobs growth may be fueling speculation that the Federal Reserve may end up putting a halt to its securities buying and ultra-low rate policies sooner than hoped. This has the bears taking control of gold and silver as the bulls appear to be ignoring the potential inflationary effects of an economic rebound which has already seen the prices of goods and services on the rise.
Although the bears certainly have reasons to be sellers, the overnight flash crash could be due largely to lower summer trading volumes. With many market participants on final vacations, any activity by large market players has the potential to move markets sharply and rapidly as was seen Sunday evening.
Against the backdrop of an improving economy and stronger jobs data, the ongoing viral pandemic could also play a major role in the Fed’s plans. The rapidly spreading Delta variant is having a major impact on China and other parts of Asia and could put the brakes on any Fed plans to begin tapering if it is not contained in short order. Providing a bit of comfort to markets, however, is the massive infrastructure spending plan that appears ready to be passed into law.
Also working against gold are a stronger dollar and weaker crude oil today. The dollar hit a two-week high overnight and could weigh on gold sentiment. The crude oil market is being beaten down by virus worries and is now trading for just over $65 per barrel. Any additional weakness in crude could drag other commodities down with it and could also lead to further selling in gold.
With a light economic calendar Monday, investors will spend the week looking for clues as to what the Fed may or may not do next. Economic data that misses expectations may be bullish for gold as it could give the Fed reason to hold pat. Any data that comes out better than expected has the potential to move markets, however, as it could fuel further worries about the Fed pulling in the ropes sooner rather than later.
With the market now firmly below previous support in the $1800 area, the bears are likely to target the overnight lows around $1676 and then push towards the $1600 level. The bulls, on the other hand, will look to take prices back above that previous support at $1800 with resistance in the $1840-$1850 area being the next target.