Gold Recovers from Flash Crash Amid Dollar Retreat & Virus Concerns


Gold Recovers from Flash Crash Amid Dollar Retreat & Virus Concerns

As last week closed, gold saw significant pressure from a positive jobs report and a subsequent jump for the 10-year Treasury yield. For gold and silver this culminated in a flash crash on Sunday, leaving Gold down by 4.4%. Silver dove by more than 7% as it briefly dipped below $23.

Following the flash crash, both metals bounced, as the dollar rally slowed. Silver quickly reached oversold territory. Coming off lows not seen since December, silver would climb back above $24.03 on Monday, which is its weekly high so far.

The Dow Jones Industrial Average and S&P 500 were both boosted by Friday’s jobs report, reaching record closing highs. Both would start the week of lower, as momentum slowed, and investors exercised more caution in considering effects from the COVID-19 delta surge. 

Investors would look to the release of two rounds of inflation data on Wednesday and Thursday for the next real barometer of economic recovery. Given the positive jobs data, Fed taper talks also became more relevant, as investors would listen closely for hints from Fed speakers throughout the week.

The first round of inflation data was released on Wednesday, via the consumer price Index (CPI), which rose by 0.5% for July, slowing from the 0.9% climb in June. The 10-year Treasury note initially rose, but its five-day rally would come to an end on Wednesday. Dow and S&P 500 finished at record highs as well, given consumer inflation projections had matched expectations.

On Thursday, the Producer Price Index (PPI) revealed an increase in cost for producers of 1% in July, versus the 0.6% that was predicted. This would be the fastest acceleration of price increases in that sector since this data was recorded, beginning in 2010. Some experts attribute the sharp rise in costs to supply chain disruptions and shortages of key materials.

Silver would remain around the $23.50 mark, headed into Thursday. Gold, on the other hand, had been steadily gaining ground since Tuesday. The yellow metal found more support from lower yields and a softer dollar. By Thursday, gold has risen by 3.6% as it touched $1,756 an ounce.

The gold rebound continued into Friday as momentum was gained from a dollar retreat of 0.5%, virus woes, and another downturn in the 10-year Treasury yield. Currently, gold is at $1,776 an ounce, up 5% from Sunday’s lows. Silver rose by more than 2.7% on Friday and is currently near $23.80 an ounce.

As investors continue to gauge risks associated with rising delta variant cases, gold may continue to benefit. However, Fed tapering speculation still abounds, and U.S. stocks continue towards fresh records as recovery efforts continue. Investors are hoping for clarity as the Fed is expected to reveal the tapering timeline at the end of the month, during the meeting at Jackson Hole.

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