What caused a ‘flash crash’ in gold in August? WGC explains

In its latest report, the World Gold Council (WGC) explains the potential causes of the same.

Gold traded weak on 6 August (Friday), down 2.3% as strong US payroll data suggested the Fed may taper earlier than expected. On the same day, the US dollar also strengthened, as did yields, dragging prices of the yellow metal further.

On Monday (9 August) of the following week, there was a quick sell-off in gold in Asian markets on over $4 billion of volumes. This happens during a period when there is generally less liquidity in global markets across all assets, said the report.

WGC further said there were some technical components that could have created this quick sell-off. First, technicians highlighted the recent “death cross” where the 50-day moving average fell below the 200-day moving average, which is considered bearish. Second, the quick sell-off had likely initiated some stop-loss orders that were probably situated around the $1,700 level, and this created a snowball effect, causing additional selling.

The key takeaway from what happened that day was that gold finished down less than 2% in US market hours, added WGC.

Nonetheless, despite a small-hour flash crash, gold ended only slightly lower month-on-month in August on firmer interest rates and marginal weakness in exchange traded fund (ETF). In August, gold-backed ETFs saw net outflows of 22.4 tonne, as North American outflows outweighed inflows into European and Asian funds, the WGC said.