Gold and silver claw back losses after Friday’s stellar jobs report ignited concerns over tighter Fed policy and unleashed a ‘flash crash’

FILE PHOTO: Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London, Britain July 21, 2015. REUTERS/Neil Hall
  • Gold and silver were recovering somewhat on Monday from a flash crash in Asia trading session.
  • Gold fell as much as 4% to $US1,707 ($AU2,326) an ounce, and silver fell 9% to $US22.10 ($AU30) at one point late Sunday.
  • Prices are under pressure from growing expectations the Fed will rein in stimulus sooner than seen, given Friday’s stellar jobs report.
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Gold and silver prices on Monday recovered slightly from a sharp slide at the start of Asian trading, but were weighed down by rising expectations that the US Federal Reserve will cut back on its bond buying sooner than expected.

Spot gold prices declined 4% to $US1,707 ($AU2,326) per ounce late Sunday, while spot silver prices dropped 9% from $US24.34 ($AU33) to $US22.10 ($AU30) an ounce.

Both metals are paring losses after the “flash crash”. Gold was trading at $US1,748 ($AU2,382) per ounce at 4:55 a.m. ET Monday, down 0.8% on the day and at its lowest level since April. Silver was down 1.7% at $US23.90 ($AU33) an ounce after touching its lowest level since December.

The flash crash occured after gold broke through a technical support level and triggered stop-loss orders. These orders to sell kick in once an asset hits a certain price, and they had an impact on a day of low liquidity in Asia due to holidays, some analysts said.

“With liquidity at zero to non-existent (on Monday), it is clear that when gold moved through $US1,750 ($AU2,384) an ounce, it set off a cascading negative feedback loop of stop-loss selling into a market with no bids,” said Jeffrey Halley, a senior market analyst at OANDA.

Speculation among traders about the flash crash pointed to an order to sell $US4 ($AU5) billion in gold futures, according to Marshall Gittler, head of investment research at BDSwiss. China, looking to drive up the US dollar, or short sellers were behind the order, according to the chatter.

While the precious metals are recovering somewhat, seen by analysts as likely due to bargain hunters entering the market, they remain under pressure after a stellar July US jobs report on Friday.

This improved outlook, alongside rising inflation, is seen as increasing the chances the Fed will start to narrow its stimulus support sooner than previously seen. Comments from Dallas Fed President Robert Kaplan last week that the central bank should start tapering asset purchases soon – and gradually over about eight months – helped raise expectations.

Gradual slowing of the Fed’s large-scale asset purchases is now now very likely to start before Christmas, according to OANDA’s Halley.

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