Why did Gold collapse…. and how some traders profited

by Joe Oliver, Forex Trading-Pips

Yesterday’s violent panic liquidation selloff in Gold created volatility the likes of which haven’t been seen in the yellow metal for over 30 years. OANDA’s Dean Poppelwell explains the recent selloff in today’s MarketPulseFX Update….

Market losses were exacerbated in all asset classes yesterday following data that showed that China’s economy expanded more slowly than expected. Many investors happened to jump, pull their ripcord and sought shelter in risk averse trading positions. Since then, the extreme market moves, especially within the commodity class, had some investors looking for bargains after the heavy market losses…


 

The yellow metal has been trying very hard to lose its ‘shine’, however, despite printing a new two-year low during the Asian session the commodity is standing upright this morning. Capital Markets have been consumed with commodity price moves over the past-two sessions – attribution for gold’s two-day break is given to a huge sell order (+400-tonnes) from last Friday. Not helping matters and providing a significant dent to investors risk psyche was the below expectation GDP growth figures from China over the weekend. Has the market been able to break the commodity bulls back? Not yet broken, but very much strained as major weekly support now appears at $1,325 and resistance topside above $1,413 and $1,436.

To the few initiated gold bugs, there have been four-key factors for the gold’s historic collapse since last week:

  • India – The country has hiked its gold import tax rate by +50% to 6% at the start of this year. This has curbed gold demand.
  • Chartists – Technical analysts have continue to warn the public that that gold prices will continue to fall.
  • Cyprus – Chancellor Merkel is seeking re-election in Germany this September, and she is trying to distance herself from the ailing periphery problems to win further domestic favor. She has told Cyprus and others that they should sell some of their gold to pay their debts – Germany is tired of bailing out the EU “have-not’s.”
  • Bitcoins – Do not underestimate the collapse of Bitcoin – most investors also happen to own gold as well.

…More at Yen Continues To Bully The EUR

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How Some Traders Profited from the Collapse in Gold

When volatility is expanding the best Trading Strategy to trade is a Volatility Breakout methodology such as the One Night Stand Friday breakout system. One Night Stand system entry and exit points are marked on the chart below…

One Night Stand triggered short entry on XAGUSD last Friday at 1539, right at the very beginning of the collapse…  Total Profit +9200 PIPS on 2000 PIPS initial risk over just 2 trading sessions!