Gold first entered a bear market in April, and the recent rout has seen the precious metal break below the $1,200 level this week.
Adam Grimes, CIO at Waverly Advisors told Business Insider that market participants have stop orders beyond visible support points in the market.
“[The sell off in mid-April] was quite likely driven by a cluster of these orders, and we believe that more are probably lurking lower,” he said.
A stop order is an order to sell a position if price fall to a certain level.
Here’s more from our conversation with Grimes.
“When these orders are hit, they take so much liquidity from the market that price makes a sudden and sharp movement. Again, there are key elements of price behaviour in these areas that can help manage risk and set up trading opportunities on all time-frames.
“Though this looks like manipulation to many people, there is nothing nefarious here–this is simply how markets have worked since the beginning of recorded market history.”
Moreover he said that gold and other precious metals are responding to emotional and psychological factors like fears of losses. And that there is a “considerable downside from this point.”
“$850 would be our ultimate target for the move,” said Grimes. Though he doesn’t see a smooth fall to that level. Moreover, he adds that if there is a reversal in gold prices Waverly won’t stick with a specific price target.