Gold Rebounds Slightly on Summers Withdraw

Jacob Harper |

Gold has been absorbing the expected curbing of federal stimulus for weeks, as the flow of government money into the economy is almost universally expected to begin on Sept 18. The severity of the taper in the coming months was abated on Sept 16, as the hawkish Larry Summers took himself out of contention to head up the Federal Reserve, leaving the more dovish Janet Yellen as the clear frontrunner. Following this announcement, gold rebounded slightly in late trading.

This tapering is occurring concomitantly with more positive developments out of Syria. The recently-brokered pact to have Syria turn over their chemical weapons to international interests has eased fears that the US was heading towards another conflict in the Middle East.

After bottoming out in late June at around $1,180 an ounce, gold had spent all summer rallying, gaining over 20 percent in value amid fears a conflict in Syria was imminent and the tapering of the government stimulus would continue unabated. Gold hit an all time high on Aug. 28, and stayed above $1,400 an ounce through early September before it began its slide.

With news that the US and Russia had brokered a deal to stave off conflict, and the much-expected announcement from the Fed that the first official tapering of government bond-buying would shrink from $80 billion to around $65 to $70 billion on Wednesday, gold dropped in early trading on Sept 16.  But the news of Summers taking himself out of the running for the Fed chair ultimately won out for investors, as the yellow metal ended the day slightly up.

Spot gold dipped on the day down $11.80 an ounce to hit $1,316.50 an ounce, but December Comex saw a modest gain on the day, rising $7.50 to hit $1,360 an ounce.

On Friday Comex had to take drastic measures to stop a market panic on gold, as the price plummeted $12 an ounce in two minutes. This plunge triggered an automatic failsafe designed to halt excessive market fluctuation, and trading was completely halted for 20 seconds. 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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