(Kitco News) – It has been a relatively quiet summer for gold, but things are starting to heat up again as we close out a hectic week. The excitement began early Sunday when a trader sold 24,000 future contracts at the start of the Asian trading session.
Trading activity during Asian hours is light at the best of times, throw in summer trading conditions, and a major order can have a massive impact. In one fell swoop, $4 billion worth of gold was sold, and prices at one point were down more than 4%.
However, there is a lot of resilience among precious metals traders. Many saw the flash crash as an opportunity to buy at a discount. Fast forward to today, not only did gold recover from Sunday’s selloff, but it is ending the week with roughly a 1% gain.
Some analysts have said that the selloff and subsequent bounce have created one of the most bullish technical pictures a trader could want. Gold prices settled the week at $1,780 an ounce. Analysts will be anxious to see if prices can push back above $1,800 an ounce next week.
In an interview with Kitco News, William Cai, partner at Wilshire Phoenix, said that gold’s flash crash hadn’t changed any of gold’s supportive fundamental drivers. He noted that gold would continue to be supported by rising inflation pressures and continued government spending.
Interestingly, on the same night, gold crashed, the U.S. Senate passed a $1 trillion spending bill that included $550 of new spending initiatives. Later in the week, the Senate also passed framework legislation to move forward with the government’s broader $3.5 trillion spending plan.
A lot of money continues to be pumped into the U.S. economy, which will continue to support gold prices.
Kitco News’ Anna Golubova covered a report from Bloomberg Intelligence, and they remain bullish on gold as it recovers from its recent lows.
Senior commodity strategist Mike McGlone, and author of the report, said that gold is still on track to push back to $2,000 an ounce.
“A potential catalyst for gold to reach $2,000-an-ounce resistance is a bit of reversion in the stock market and continued decline in U.S. Treasury bond yields from the March peak,” he said. “We see gold more likely to approach $2,000 resistance than sustain below $1,700 support in 2H.”
New attention on gold is also well-timed as the market prepares to acknowledge a critical milestone. Sunday, Aug 15, will be the 50th anniversary of President Nixon closing the “gold window” and ending the Bretton Woods Agreement.
While not an official gold standard, the Bretton Woods Agreement made the U.S. dollar the world’s reserve currency, and gold was pegged to the U.S. dollar at $35 an ounce. Because of rising inflation, nations worldwide were quickly redeeming their U.S. dollars for gold.
According to George Milling-Stanley, chief gold strategist at State Street Global Advisors, these redemptions put U.S. solvency at risk, so Nixon was forced to decouple the U.S. dollar from gold.
Overnight gold went from a global currency to a regular commodity; however, analysts note that in the last 50 years, the precious metal has remained a relevant asset in global financial markets and a proven store of value.
Although it’s unlikely that a new gold standard will emerge anytime soon, some analysts don’t rule it out.
“For thousands of years, gold was used as a currency, and we are talking about only the last 50 years,” said Thorsten Polleit, chief economist at Degussa. “I think it would be unwise to think that we can rely on unbacked paper currencies forever.”
That is it for this week. Have a great weekend