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March 24, 2020

XBTFX, Gold XAUUSD market volatility causes unprecedented liquidity flow

XAUUSD's market is experiencing unprecedented market volatility and liquidity flows.

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Recent global market developments have seen several exchanges both in the EU and US, place trading on hold on numerous occasions.

Increased volatility coupled with low liquidity has seen some very unstable market conditions which have been reflected on the trading platform (wider spreads, inability to close orders or open new positions due to trading halts).

The most likely instruments to be affected at this stage are commodities, metals, energies and indices markets.

The XBTFX team is closely monitoring the current global situations and will keep all clients up to date with any changes to the trading environment.

High Volatility with Coronavirus situation

Volatility remains elevated on Gold and Silver, pushing major liquidity providers to show much wider spreads on these instruments.

The issue stems from a divergence between physical Gold and Silver, and the Futures market.

Due to the latest Coronavirus situation in Switzerland, refineries have had to close, causing the production of physical gold to come to a halt.

We do not expect this issue to be resolved anytime soon, and in the meantime, we advise you to keep your accounts well-funded, while remaining alert to increased volatility.

Moreover, we advise you to review your current and pending positions for in times of increased volatility, slippage is much more probable.

Situation of Gold XAUUSD market

Please be informed that high volatility across the markets is leading to sharp moves in indices and currencies.

As a result, spreads in the spot market have widened dramatically.

Specifically the XAUUSD, trading conditions are notably worse in the past 24 hours.

Kindly remain aware and vigilant of the increased risk and spread on XAUUSD trades because pricing may be erratic and intermittent in the coming days.

As always, XBTFX aims to provide for the Clients a stable and competitive trading environment but certain current market variables are out of XBTFX’s control.

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Halt of Gold Market Pricing

One of the key drivers of the XAUUSD dislocation seems to be arising from the exchange for physical “basis” as known as the cost to swap Futures into OTC (spot) XAU, is essentially closed.

Many eFX LPs simply quote retail venues a spot price in XAU and then hedge into the Futures market.

Essentially, LPs are taking a risk on the implied “basis”, skewing prices to try to attract flow that will reduce their risk.

The USD funding squeeze has put significant pressure on LPs who are all generally short “basis”.

Refineries in Switzerland have also shut down and physical delivery of Comex Gold has been made nearly impossible because of flight restrictions, making it harder to physically deliver bullion to cover shorts.

XTBFX is not expecting pricing/liquidity to resume to more normal levels for a number of days but will do everything to work with the LPs to ensure the best possible pricing and execution for XTBFX traders.

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The Fed’s Moves Impact Global Markets

Gold gained strongly for the third consecutive session on Tuesday after Fed’s unlimited QE hits the USD and provides strong boost to the metal.

The Fed announced new measures to buy unlimited amounts of Treasury bonds and mortgage-backed securities in order to support the struggling economy from the coronavirus pandemic impact.

The extraordinary programs helped ease concerns over tightening liquidity and was aimed to keep borrowing costs at their lowest levels, which eventually underpinned the price of Gold and weakened the Dollar.

Many currencies are gaining value on the USD, this is creating some good opportunities in the markets, such as the UK’s stricter lockdown helped GBP/USD to gain some traction and EUR/USD trading around the 1.0800 mark.

Such conditions are ideally suited for many strategies to capitalise on the markets, such as trend following systems and Scalping EAs.

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