This asset dropped by over 4.0% in 1 hour! (It’s not BTC!)

“Spot prices dropped by over 4.00% in a span of 60 minutes before rebounding back 2-3 hours later.”

 

The above situation sounds like how BTC typically behaves with its extreme volatility. (For those of us who doesn’t track BTC, BTC’s price fell by over 55.00% in a span of 2 months recently, with the biggest drop being 49.00% within 2 weeks.)

 

That’s akin to saying your million-dollar HDB flat is now worth only 500k on the market. Ouch.

 

But guess what, the above situation refers to our safe haven asset known as Gold and it happened just this week, 9th August 2021 (Incidentally when Singapore celebrated its National Day holiday.)

 

The massive dip occurred just after 0700hrs local Singapore time, a time where most people were just starting their day. The dip lasted for an hour before rebounding back upwards 2 hours later towards levels of US$1740.

 

GSC Morning Call

 

The big money question is “Why?” And we at GoldSilver Central, have laid out several possible scenarios as to what might have happened.

 

Background

Coincidentally, on the 9th August, two major Asian markets were closed. Singapore was celebrating its National day and Japan was observing its Mountain Day holiday in lieu. With both markets closed, the depth of the commodities market was shallow, and liquidity obviously was not as readily available. There were probably fewer traders physically on desk as well.

 

Scenario 1:

A large legitimate sell order was placed. As traders were mostly off desk, the order could have been placed out into the market instead of a manual cover by an actual trader. And due to the lack of liquidity in the market, prices dipped accordingly to fill up the glut caused by the large sell order.

 

Of course, there are several follow-up questions in this scenario. Would prices really dip that much? Would this big dip happen again? What can I do to prevent margin calls for my account?

 

The truth is, we will never know with certainty. Unless we are the actual parties involved (The dealer who got the sell order or the actual customer with the sell order), we can only “guess” based on the available data that we have on hand. And the one thing is clear, Gold dipped by over 4.00% in an hour to hit a low of US$1684.72 between 0700 – 0800 hr local Singapore time on 9th August 2021.

 

Would it happen again?

We don’t know. From our experience, big orders are usually spread out across several days due to its sheer size to avoid large slippages and market movements. Hence, they are usually done Over-The-Counter, directly between market participants. This prevents unnecessary shocks to the markets. From the looks of the markets right now, it seems that we are out of the woods with gold prices hovering around the US$1750.00/oz levels. But can we say with certainty that prices will not cross below US$1700 in a shock dip like what we just experienced? No, we cannot be certain.

 

Scenario 2:

High-frequency trading probably exacerbated the drop triggered by stop losses.

 

Due to the prevalence of high frequency trading these days, large volumes of trades can be pushed through in a shorter span of time now. There is debate as to whether HFT ultimately contributes to increased market volatility and sharper spikes and crashes. However, we will leave that to another day for discussion.

 

What we wish to bring up here is that the quick pace at which the price dropped that morning probably didn’t even leave time for most traders to adjust their stop losses accordingly. Each lower price level would likely have triggered further stop losses, thus resulting in a negative spiral downwards until more and more traders caught wind of the situation and managed their positions accordingly.

 

 

Well, what should you do now?

 

NOTHING.

 

Ever heard of the saying “Don’t try to catch a falling knife?” The same principle applies here, you weren’t in the right position before the event occurred. So don’t try to chase after something that is just simply not meant to be.

 

Reacting to an unexpected situation is never a good thing and we won’t know for certain what is going to happen next. If anything, stick to your gameplan. There are always opportunities in the markets.

 

If your initial position was a buy position, then see this as a good chance for accumulation. And do it wisely. GoldSilver Central offers you the tools to do so. We have:

 

1. GoldSilver Central Savings Accumulation Programme

Dollar Cost Averaging Strategy is the crux here, and when you onboard the GSAP, accumulating daily is stress-free. Think of it as automated disciplined savings for your purse strings. It allows you to break up your purchase into daily smaller bite sizes, spreading out the price risk that you must bear. More discipline in your life isn’t such a bad thing.

 

2. GSC Live! Mobile platform

A mobile friendly application that is a powerful tool for investors. You now have the capability to view and transact based on live streaming market prices. Yes, that is right, you can buy / sell anytime and anywhere that you find convenient. So if prices were to crash once again, you would be able to take action immediately. And the best part? It’s 100% physically deliverable. Yes, let me repeat, 100% physically deliverable. You can exchange the pool allocated gold in your GSC Live! Account for physical bars & coins at our retail shop.

 

If you wish to learn how GoldSilver Central can add value to your portfolio, let us know and we’ll give you a call at your convenience.

 

 

 

 

Jason