Flash Crash in Gold

I woke up to the news of a flash crash in gold this morning. Someone found it an opportune moment to dump $4 billion in gold futures in the early hours of trading. If the goal was to get a good deal on the futures, it was about as bad a moment as it's possible to choose. However, if the aim was to break gold's upward move since late June, it appears to have worked. But the move failed to break all the support lines. Notably, the support line established by the odd looking cup and handle pattern earlier this year was not breached. $1670 held firm, and we're currently trading around $1740, only hours after the flash crash.

To put things in perspective, we need to go to the weekly chart where it becomes apparent that we're stuck in a wedge formation. There's support at $1670, and there's resistance from a downward line that goes from $2070 in August 2020, through $1920 in late May this year, and with an end at $1670 early next year.

This doesn't mean that we'll have to wait until next year to see where we go from here. It merely means that we have to wait for a breakout to the upside or downside of this wedge before things become interesting again.

We can also take comfort in the flash crash of March 2020, also visible in the weekly chart. Gold dropped from $1700 to $1450 before charging to its all time high at $2070 by August. If we get a repeat of this, we'll be up 30% from current lows by the end of the year. That's around $2200.

The fundamentals for gold remain strong, so it's hard to imagine gold going much lower than where we are at the moment. There's also plenty of support lines below the current level, notably the $1370 level that held as resistance from September 2013 until June 2019. I doubt that we'll go that low again, but if we do, it will be an excellent opportunity to accumulate more gold.

My bet is still for a positive end to this year. The upward potential remains unchanged. The flash crash broke the short term pattern, but not the longer term potential. A move to $2200 by the end of the year is no less likely now than it was a few days ago.

Rococo Cup with handle

By Vincennes Porcelain (France, circa 1739–1756), Francois Binet (France, active 1750-1775, born 1731) - Image: http://collections.lacma.org/sites/default/files/remote_images/piction/ma-31852871-O3.jpg Gallery: http://collections.lacma.org/node/229367 archive copy, Public Domain, Link