“No One Has A Clue”: Markets Baffled By Monday’s Gold Flash Crash

And so, the intrigue grows around a “mystery” that’s only a mystery if you don’t understand that the evolution of trading has for all intents and purposes ensured that flash crashes will be a staple of modern markets.

Simply put, the presence of machines creates the conditions for things to go awry for reasons that humans, by virtue of being humans, can’t immediately/fully understand.

It’s the same way a machine wouldn’t immediately understand why someone with a hangover accidentally caused a bout of market mayhem by passing out and slamming their head into the keyboard.

Of course even if it was a carbon-based finger on the button this morning, you’ve got to picture legions of algos trying to figure out what just happened and react instantaneously. So everyone ends up chasing down a rabbit hole, exacerbating the move.

The spike in USDJPY and Treasury yields pretty clearly looks to be a consequence and not a possible proximate cause here.

You’ll recall that around 4 a.m. EST, gold plunged $18 in seconds on surging volume (18k contracts in a one-minute window) for no apparent reason, falling from 1,253 to test 1,236, the 200-DMA:

gold

Here’s Nanex with their always colorful look inside the Matrix:

18,149 lots traded at ~9am on Comex in New York, compared with 2,334 lots at ~10am.

“No-one has a clue, apart from the unfortunate individual that pressed the wrong button,” David Govett, head of precious metals trading at Marex Spectron Group in London, told Bloomberg by email, adding that “thinner liquidity, increased use of algorithmic trading could exacerbate such moves.”

Why yes, David, that most certainly could be part of it.

“These moves are going to become more widespread with the way things are going and the more they happen, the worse they will become as people back away from holding positions,” Govett went on to warn.

Other traders, Bloomberg notes, also pointed to a so-called fat finger trade.

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