If you remember, about a week ago I mentioned that my work week typically starts on Sunday night when I observe how markets open in Asia.
This Sunday, let’s just say that markets opened… in interesting fashion.
Gold started the week by selling off quickly, triggering a series of stop-loss orders that pushed prices for the yellow metal all the way down to $1,677.90 per ounce. Mainstream media is panicking, so how do we trade the gold flash crash?
Source: Bloomberg
Prices have since recovered into the low-$1,700 range, but there are a few things to note there.
First off, the volume sold during that 15 minutes — roughly 24,000 contracts, or $4 billion — was enormous. But it was still dwarfed by last Friday’s U.S. open, where about 143,000 contracts, or $21 billion, changed hands in a couple hours.
On the positive side, that means there were $25 billion worth of open limit orders on gold out there, just hoping to get filled.
But the reality is that momentum traders dominated daily volume, and the gold flash crash flushed the yellow metal’s three-month bullish momentum completely down the tubes.
Source: Bloomberg
Now that it’s been fully breached, I think we have to wait and gather data before deciding if gold should even be on our radar right now.
My instincts say “yes” because we’re still ultimately headed into stagflation — an economic condition under which gold generally performs well.
But that doesn’t mean it’s going to happen right away.
Factors Affecting Whether to Trade the Gold Flash Crash
Friday’s jobs report was received well, with nearly 1 million jobs added to the economy. That implies that consumer spending growth might not be finished rising yet.
If it becomes clear that we’re headed back to full employment — and Monday’s JOLTS job openings report implies that we’re at least trying — then the Federal Reserve may indicate it will stop making, or “taper,” its monthly asset purchases.
Well, the market had a pullback the last time that happened back in 2013, and it was drastic enough to earn a nickname: the “taper tantrum.”
It’s a cute name and all, sure… but during that period, the price of gold fell by 33%.
Source: Bloomberg
There’s no guarantee the Fed will do that this time around with the delta variant running amok in the Southern and Midwestern U.S… But we at least have to be aware of it.
So while we fully understand anyone who wants to back up the truck here and trade the gold flash crash, Fortune Research is going to take a beat and study up first.
But if the Fed ultimately shows their dovish feathers like I think they’re going to, we’ll be backing up the truck ourselves, picking up more shares in Proshares Ultra Gold (NYSEArca: UGL) and Proshares Ultra Silver (NYSEArca: AGQ).
Finally…An Infrastructure Bill!
After what seems like a million years ago – but it was only April 1st when we wrote about it – we have a completed infrastructure bill!
Back in that issue, I put the Global X U.S. Infrastructure Development ETF (NYSEArca: PAVE) on your radar. It’s up a little over 8% since, but absolutely blasted off today on the back of the legislative news.
Source: Bloomberg
I’ll be back Thursday with a comparison between the initial $4 trillion package proposed by Democrats and this slimmed down version on Thursday.
A first glance shows this one is more focused on hard infrastructure and rural broadband – both sorely needed in this analyst’s opinion.
But there is another $3.5 trillion package waiting in the wings that focuses more on social spending. And according to several prominent legislators with whom I spoke last week at an industry conference, there’s a chance much of it could be shoved through budget reconciliation.
Never a dull moment in politics.
In the meantime, however, I just want to reiterate again that PAVE is an ETF to buy on any dip, as the companies therein will be bolstered by government infrastructure spending for the foreseeable future.
If it manages to dip back down into the mid-$26 range this week, picking up a quarter stake would be a solid idea… Solid as a rock.
All the best,
Matt Warder
P.S. Want to join the Daily Profit Challenge?
Anyone who has heard of Future of Wealth Head Trader Lance Ippolito’s Weekly Blitz Alert method probably gets the basics:
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Wait for the Shadow Blitz.
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Place a trade before the market closes.
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Cash out!
When Lance was on Wall Street, he found that unusual trades were constantly being placed right before a massive overnight runup.
But they can happen way faster.
