The progression of gold's collapse from Friday April 12th to Tuesday April 16th may hold a lesson we could learn from the past. First, here is how the market looked on those days:
Courtesy of Barchart.com
Here are the open-high-low-closes:
| open | high | low | close | gap | change | range | 3/28/2013 | 1605.6 | 1608.3 | 1594.3 | 1595.7 | | | | 4/1/2013 | 1598.1 | 1601.6 | 1595.2 | 1600.9 | 2.4 | 5.2 | 6.4 | 4/2/2013 | 1600.1 | 1604.3 | 1574 | 1575.9 | -0.8 | -25 | 30.3 | 4/3/2013 | 1576.4 | 1577.3 | 1549.7 | 1553.5 | 0.5 | -22.4 | 27.6 | 4/4/2013 | 1557.7 | 1559.3 | 1539.4 | 1552.4 | 4.2 | -1.1 | 19.9 | 4/5/2013 | 1554 | 1581.8 | 1549 | 1575.9 | 1.6 | 23.5 | 32.8 | 4/8/2013 | 1580.8 | 1582.9 | 1566.6 | 1572.5 | 4.9 | -3.4 | 16.3 | 4/9/2013 | 1572.4 | 1590.1 | 1570 | 1586.7 | -0.1 | 14.2 | 20.1 | 4/10/2013 | 1585 | 1588.5 | 1555.3 | 1558.8 | -1.7 | -27.9 | 33.2 | 4/11/2013 | 1559 | 1568.1 | 1553 | 1564.9 | 0.2 | 6.1 | 15.1 | 4/12/2013 | 1560.3 | 1564.2 | 1476 | 1501.4 | -4.6 | -63.5 | 88.2 | 4/15/2013 | 1481 | 1495 | 1335.1 | 1361.1 | -20.4 | -140.3 | 159.9 | 4/16/2013 | 1355 | 1404.2 | 1321.5 | 1387.4 | -6.1 | 26.3 | 82.7 | 4/17/2013 | 1371.4 | 1395.2 | 1365 | 1382.7 | -16 | -4.7 | 30.2 | 4/18/2013 | 1376.1 | 1402 | 1335.6 | 1392.5 | -6.6 | 9.8 | 66.4 | 4/19/2013 | 1393 | 1424.7 | 1385.4 | 1395.6 | 0.5 | 3.1 | 39.3 | 4/22/2013 | 1408.3 | 1438.8 | 1403.5 | 1421.2 | 12.7 | 25.6 | 35.3 | 4/23/2013 | 1425.4 | 1432.8 | 1404 | 1408.8 | 4.2 | -12.4 | 28.8 | 4/24/2013 | 1412.5 | 1433.6 | 1411.5 | 1423.7 | 3.7 | 14.9 | 22.1 | 4/25/2013 | 1430.3 | 1468.6 | 1426.3 | 1462 | 6.6 | 38.3 | 42.3 | 4/26/2013 | 1467.3 | 1484.8 | 1447.3 | 1453.6 | 5.3 | -8.4 | 37.5 | 4/29/2013 | 1466.2 | 1478.3 | 1461.6 | 1467.4 | 12.6 | 13.8 | 16.7 | 4/30/2013 | 1476.6 | 1479.5 | 1460.5 | 1472.1 | 9.2 | 4.7 | 19 | 5/1/2013 | 1475.6 | 1477.4 | 1439.7 | 1446.2 | 3.5 | -25.9 | 37.7 | 5/2/2013 | 1457 | 1473.3 | 1448.1 | 1467.6 | 10.8 | 21.4 | 25.2 | 5/3/2013 | 1466.2 | 1487.2 | 1455.4 | 1464.2 | -1.4 | -3.4 | 31.8 | 5/6/2013 | 1470 | 1478.4 | 1463.8 | 1468 | 5.8 | 3.8 | 14.6 | 5/7/2013 | 1469.1 | 1470 | 1440.4 | 1448.8 | 1.1 | -19.2 | 29.6 | 5/8/2013 | 1451.6 | 1475.8 | 1446.7 | 1473.7 | 2.8 | 24.9 | 29.1 | 5/9/2013 | 1473 | 1476 | 1452.1 | 1468.6 | -0.7 | -5.1 | 23.9 | 5/10/2013 | 1457.5 | 1461.2 | 1418.5 | 1436.6 | -11.1 | -32 | 42.7 | 5/13/2013 | 1447.7 | 1448.3 | 1424.7 | 1434.3 | 11.1 | -2.3 | 23.6 | 5/14/2013 | 1429.5 | 1444.9 | 1419.7 | 1424.5 | -4.8 | -9.8 | 25.2 | 5/15/2013 | 1424.5 | 1429.4 | 1386.4 | 1396.2 | 0 | -28.3 | 43 | 5/16/2013 | 1392.5 | 1397 | 1368 | 1386.9 | -3.7 | -9.3 | 29 | 5/17/2013 | 1385.2 | 1391.3 | 1353.6 | 1364.7 | -1.7 | -22.2 | 37.7 | |
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After $1650 support was broken in February, $1550 was gold's major support level until Friday, April 12th. The above shows a clear-cut, yet dismal picture of gold trading down a record $140.30 in one day. Firstly, with a $20 down gap opening and then a $159.90 down trading range. As bad that looks the chart hides the true extent of the problem.
The posted April 12th close of $1501.40 was determined during the "daily settlement time range" of 1:29 PM to 1:30 PM Friday afternoon. The gold futures market then continues trading until it "closes" for 45 minutes at 5:15 PM. Since it's Friday, it does not re-open 45 minutes later at 6 PM. It stays closed until it opens early Sunday evening at 6:00 PM (all NY Time).
Thus, the market on Friday April 12th continued down after the $1501.40 settle (see the hourly prices below) to end Friday 5:15 PM at $1476.10! Friday's last trade was $25.30 below Friday's posted close! It pays sometimes to be obsessive about watching quotes.
Hourly Prices
| open | high | low | close | gap | change | range |
4/12-1p | 1505.5 | 1505.7 | 1498.8 | 1502.9 | 0 | -2.6 | 6.9 |
4/12-2p | 1502.8 | 1503.8 | 1499.2 | 1499.6 | -0.1 | -3.3 | 4.6 |
4/12-3p | 1499.6 | 1499.9 | 1482.3 | 1487.5 | 0 | -12.1 | 17.6 |
4/12-4p | 1487.6 | 1488.8 | 1480 | 1482.8 | 0.1 | -4.7 | 8.8 |
4/12-5p | 1482.7 | 1482.7 | 1476 | 1476.1 | -0.1 | -6.7 | 6.7 |
4/14-6p | 1481 | 1484.4 | 1477 | 1482.9 | 4.9 | 6.8 | 7.4 |
4/14-7p | 1482.9 | 1490 | 1482.5 | 1489.4 | 0 | 6.5 | 7.5 |
4/14-8p | 1489.4 | 1495 | 1483.5 | 1484.9 | 0 | -4.5 | 11.5 |
4/14-9p | 1484.9 | 1485.1 | 1443.4 | 1446.1 | 0 | -38.8 | 41.7 |
4/14-10p | 1445.8 | 1449.3 | 1422.2 | 1441.2 | -0.3 | -4.9 | 27.1 |
4/14-11p | 1441 | 1452 | 1433.8 | 1440.9 | -0.2 | -0.3 | 18.2 |
4/15-12a | 1441.1 | 1448.9 | 1436 | 1446.9 | 0.2 | 6 | 12.9 |
4/15-1a | 1446.6 | 1453.8 | 1441.2 | 1450.9 | -0.3 | 4 | 12.6 |
4/15-2a | 1450.8 | 1458.5 | 1447.8 | 1452.5 | -0.1 | 1.6 | 10.7 |
4/15-3a | 1452.4 | 1455.4 | 1433 | 1437.2 | -0.1 | -15.3 | 22.4 |
4/15-4a | 1437.3 | 1442.5 | 1401 | 1411.1 | 0.1 | -26.1 | 41.5 |
4/15-5a | 1411 | 1424.4 | 1390 | 1393.8 | -0.1 | -17.3 | 34.4 |
4/15-6a | 1393.6 | 1422.1 | 1385 | 1408.8 | -0.2 | 15 | 37.1 |
4/15-7a | 1408.8 | 1417 | 1398.9 | 1409.5 | 0 | 0.7 | 18.1 |
4/15-8a | 1409.5 | 1428 | 1403.2 | 1421.7 | 0 | 12.2 | 24.8 |
4/15-9a | 1421.7 | 1422.8 | 1401.1 | 1404.1 | 0 | -17.6 | 21.7 |
4/15-10a | 1404.2 | 1405 | 1356.6 | 1364.5 | 0.1 | -39.6 | 48.4 |
4/15-11a | 1364.5 | 1379.9 | 1355.3 | 1379.2 | 0 | 14.7 | 24.6 |
4/15-12p | 1378.9 | 1383.4 | 1368 | 1371.1 | -0.3 | -8.1 | 15.4 |
4/15-1p | 1371.3 | 1377.3 | 1360.5 | 1369.4 | 0.2 | -1.7 | 16.8 |
4/15-2p | 1369.2 | 1371.3 | 1348.5 | 1350.1 | -0.2 | -19.3 | 22.8 |
4/15-3p | 1350.1 | 1368.7 | 1350 | 1357.6 | 0 | 7.5 | 18.7 |
4/15-4p | 1357.8 | 1359.9 | 1335.1 | 1347.9 | 0.2 | -9.7 | 24.8 |
4/15-5p | 1347.8 | 1352.6 | 1347.4 | 1352.3 | -0.1 | 4.4 | 5.2 |
4/15-6p | 1355 | 1367.7 | 1347.3 | 1351.1 | 2.7 | -1.2 | 20.4 |
4/15-7p | 1350.6 | 1354.9 | 1350.6 | 1351.6 | -0.5 | 0.5 | 4.3 |
4/15-8p | 1351.9 | 1361.3 | 1321.5 | 1331.3 | 0.3 | -20.3 | 39.8 |
4/15-9p | 1331.4 | 1341.5 | 1326 | 1331.2 | 0.1 | -0.1 | 15.5 |
4/15-10p | 1331.1 | 1358 | 1327.4 | 1347 | -0.1 | 15.8 | 30.6 |
4/15-11p | 1346.8 | 1353.9 | 1340.1 | 1348.4 | -0.2 | 1.4 | 13.8 |
4/16-12a | 1348.5 | 1367 | 1348.5 | 1365.9 | 0.1 | 17.5 | 18.5 |
4/16-1a | 1366.3 | 1368.3 | 1357.1 | 1364.5 | 0.4 | -1.4 | 11.2 |
4/16-2a | 1364.5 | 1380.4 | 1363.8 | 1376.5 | 0 | 12 | 16.6 |
4/16-3a | 1376.4 | 1380 | 1371.1 | 1372.9 | -0.1 | -3.6 | 8.9 |
4/16-4a | 1373 | 1378 | 1360.5 | 1376.4 | 0.1 | 3.5 | 17.5 |
4/16-5a | 1376.4 | 1392 | 1375.8 | 1389.7 | 0 | 13.3 | 16.2 |
4/16-6a | 1389.7 | 1394.3 | 1382.8 | 1383 | 0 | -6.7 | 11.5 |
4/16-7a | 1383.1 | 1391 | 1381.1 | 1386.1 | 0.1 | 3.1 | 9.9 |
4/16-8a | 1386.2 | 1404.2 | 1386.1 | 1397.1 | 0.1 | 11 | 18.1 |
4/16-9a | 1397.2 | 1398.7 | 1379.6 | 1381.1 | 0.1 | -16 | 19.1 |
4/16-10a | 1381.1 | 1389.7 | 1371.7 | 1389.5 | 0 | 8.4 | 18 |
4/16-11a | 1389.4 | 1393.8 | 1385.8 | 1389.6 | -0.1 | 0.1 | 8 |
4/16-12p | 1389.5 | 1389.9 | 1373.7 | 1379.3 | -0.1 | -10.3 | 16.2 |
The greatest damage was done during the NY sleeping hours. Around 4:00 AM June Gold traded at $1420. In the 5 AM hour June Gold broke below $1400 for the first time. This is now $100 below Friday's posted close. We all know the subsequent carnage, notably again in the NY after-hours, with the market bottoming at $1321.50 between 8 and 9 PM Monday night.
Flash Crash?
To the question at the top, was this gold's "flash crash"? Sunday night may say yes. Monday night may say no.
It takes time for people to see, be told or realize what's happening in any market and gold may be even "slower" than other markets. People who buy gold may tend to look longer term and have stronger views than most other "fickle" traders. If participants could see where prices were falling Sunday evening (or even Friday's electronic close) they may have been there to rush in and bid the market. As it turned out, for much of the balance of April and until last week, they did just that and the gold market stabilized (as evidenced by the normal daily changes, ranges and gaps). If there was a "circuit breaker", a "cooling off period", maybe buyers could've been found and maybe we would have avoided the $1300 handle from the get go.
On Monday evening, though, after a day to consider prices, gold saw fit to make a new low (notably in the after-market) and only then it recovered. Also this past weeks action, trading below $1400, may also bring this premise into question.
Gold Limits
On June 5th 2006, the COMEX lifted daily trading limits on gold futures. Prior to that, the daily gold limit was $75 an ounce and gold futures were trading around $660 an ounce, depending upon contract month.. The limit was roughly 11% of the gold price.
Using 11% or a $150 gold limit today would not have helped investors on April 15th. A $75 limit maybe would have helped. It could have maybe produced buyers if trading was halted at $1425 for a day.
Do limits damage the free trading of the highly levered futures markets? I think maybe so for computers or algos, but maybe NOT for people, that is regular long and short term investors. A daily $75 limit may be the right circuit breaker for the gold market. Admittedly that's roughly 5% or so of today's gold price, but that may be enough. Daily limits have been part of futures trading for over 100 years, they have a seasoned and strong history of bringing order to extreme markets.
Did ending limit moves hurt or help gold? A quick look at the 10 year dispersion chart below may provide evidence for an answer:
To my eyes, gold seems more volatile after June 6, 2006 than it was before limits were lifted. Also, the number of days the market exceeded a 5% daily change can be counted by hand. April 15th's -10.39% decline was the worst one-day move in the history of the gold market!
Flash crash or not and despite hedge funds, high freqs and algos, it may be time to restore the $75 daily limit on gold futures.