Gold Ends Week Down on FOMC Minutes, Fund Re-Balancing

By Tom Luongo in Gold and Oil News, LiveWire Economics Blog | January 5, 2013 7:35 |

The minutes from the December FOMC meeting sent major shock waves reverberating through the capital markets this week.  Not only was the Euro thrashed back to re-test the $1.30 level, Gold was taken to the woodshed and beaten back to $1626 before rebounding sharply intra-day to close the week at $1655.85 per ounce.   In the end Gold was actually up $3.60 for the week in which the volatility was so extreme that there was nearly a full month’s worth of movement compressed into 4 trading days.  the range for the was was nearly $70, low to high.  Given the severity of the attempt to break the price of Gold this week, I would have to say that all in all this was a very bullish week.

Looking at the markets overall, the twin announcements of the fiscal cliff deal and the FOMC minutes created a lot of selling pressure in the bond markets at the long end of the maturity curve.  In total, it looks like this was mostly skimming the speculative froth off of the price on the 10 and 30 year Treasury Bonds.  Once the year ended and quarterly results could be booked fund managers were free to position themselves in bonds based more on their fundamentals rather than their substantial gains from earlier in the year.  With the new tax laws in place and the uncertainty of what the capital gains taxes will look like going forward created a great opportunity to book profits and get to cash and begin re-deploying that cash based on the new trends.  Gold and the Euro were caught in this cross-fire, but not for long.

About Tom Luongo
Tom is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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