Gold, Silver Prices Rebound From Fluke Flash Crash

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Gold prices rebounded Thursday following a fluke "flash crash" the prior session that erased all of last week's gains.

In intraday trade, spot gold climbed 0.49% to $1,729.20 an ounce.SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of bullion, added 0.49% to 167.36 a share. It's trading below its short-term, 50-day moving average but has only corrected 3% from its 52-week high, which is bullish.

The massive sell-off Wednesday morning sent gold prices down 2% right after the market opened. Prices rebounded from the morning low the rest of the day, leaving bullion down 1.3%. Traders blamed the sell-off on a massive sell order for 7,800 contracts entered at 8:20 am Eastern Time. That may have triggered automatic stop losses, setting off a flurry of sell orders. Short sellers, or those betting on falling prices, had to close or "cover" their positions by buying back shares, which drove prices back up.

"This selling was a 'bear raid' by what some are calling a 'nefarious' force intent upon finding stop orders along the way into which the short position could be covered," Dennis Gartman wrote in "The Gartman Letter" Thursday.

"Two things are of interest here: The Indian banks were closed yesterday, and without the Indians in the market, any attempts to frighten the longs had a far better chance of working than usual," Gartman wrote. "Secondly, the gold stocks held quite well despite this 'flash crash' in bullion and the ETFs ."

Wednesday also happened to be "roll day" in the futures markets, in which traders have to sell their expiring contracts and buy new ones to maintain their exposure to gold.

What's most important is what happens after initial trade, says Don Vandenbord, whose firm is invested inProShares Ultra Silver ETF ( AGQ ) and SPDR Gold Shares. He's a portfolio manager at Camarda Wealth Advisory, in Fleming Island, Fla., with $250 million in assets under management. Silver has recovered all of yesterday's loss and gold bounced high off yesterday's lows.

Anthem Blanchard, CEO of Las Vegas-based Blanchard Vault, which stores and sells bullion, attributed the selling to traders' reaction to fiscal cliff negotiations in Washington.

"If the fiscal cliff isn't averted, capital gains taxes on gold and silver held for more than a year will jump from 28% to 33%, and clearly some holders unloaded long-held positions to avoid that outcome," Blanchard wrote in an email. Gold and silver ETFs are treated as "collectibles," in which capital gains are taxed at 28% vs. 15% for stocks.

Gold Miners

Market Vectors Gold Miners ETF ( GDX ) ticked up 0.08% to 47.94 Thursday. It plunged as much as 3.8% intraday Wednesday but bounced off its morning lows to end the session ahead 0.93%. GDX is building a base while trading in a tight range near its 200-day moving average. It has to break back above its September high of 55.25 to trigger a buy signal, said Vandenbord.

Market Vectors Junior Gold Miners ( GDXJ ) rose 0.13% to 21.81. It fell 3.9% at the open Wednesday and spent the rest of the session rebounding to end down just 0.41%.

Silver Prices

Silver prices surged 1.72% to 34.45 an ounce, winning back all of the prior day's losses plus some.IShares Silver Trust ( SLV ) gapped up 1.87% to 33.23 -- a six-week high. It's trading above both its 50-day and 200-day moving averages, which shows a strong uptrend.

Vandenbord owns SLV with a stop loss below Wednesday's low at 31.91 a share. He believes gold prices could double over the next two years and silver could double over the next three years as the Federal Reserve's quantitative easing programs devalue the dollar.

"As long the government can't get its budget under control, gold and silver are solid investments," said Vandenbord. "You can't continue multitrillion-dollar debts without paying them back."

Global X Silver Miners ETF (SIL) jumped 0.97% to 23.00 continuing a rebounding from Wednesday's low.

Follow Trang Ho on Twitter @TrangHoETFs .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: AGQ , GDX , GDXJ , GLD , SLV

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