Gold Recovers from Its Monday Morning Flash Crash

At the opening of Asian markets Monday, gold dipped to below $1,700 after Friday’s U.S. employment figures beat expectations. The spot price recovered to $1,739.16, still down 1.3% from last week. Gold futures lost 1.1%.

Gold’s brief tumble also took silver down with it, as that metal hit an eight-month low of $22.50. 

“The sell-off in gold and silver was a prototypical shake out spurred by Friday’s strong jobs report as the market then had to price in the Fed being one step closer to reducing asset purchases and potentially raising interest rates sooner previously anticipated,” said High Ridge Futures’s David Meger in an interview. Meger added that “while the job numbers were strong, if in subsequent reports we don’t see quite the same exceptional growth or jobs increase, and some type of more transitory effect in inflation, it will confirm the fact that this was clearly an overdone move in gold.”

Much of the driver of gold’s success throughout the pandemic has been inflation fears and a weakening dollar. The surprisingly strong job report on Friday August 6th and indications that the European Central Bank won’t tighten its money markets until at least 2024 have increased the dollar’s strength, subsequently hurting gold’s standing.

A Silver Lining for Gold and Silver

MKS head of metals strategy Nicky Shiels pointed out to Bloomberg News that “a retaking of $1,750 would help install confidence.” 

Indeed, there has been a revival of jewelry-buying in key markets in India, which had been pummeled by the delta variant. Rising imports are an indicator that demand for gold could be picking up.

The mid- and long-term fundamentals for gold remain solid, and as Sprott’s Paul Wong points out, “real yields are one of the primary drivers of the gold price.” Real yields have been tumbling, which traditionally helps push gold prices up.  

Inflation fears still remain, despite the strong jobs report. The specter of another shutdown due to the delta and lambda variants has the potential to impact U.S. economic policy. The pandemic is an unprecedented event, and gold is an essential ingredient in a healthy portfolio diet during uncertain times. 

Investors can take advantage of gold’s temporarily lowered prices through the Sprott Physical Gold Trust (PHYS), which holds gold bullion. Sprott also offers two actively managed precious metals mining ETFs: the Sprott Gold Miners ETF (SGDM), which tracks gold majors, and the Sprott Junior Gold Miners ETF (SGDJ), which tracks junior gold miners.

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