Posted on September 16, 2013
Gold prices are higher this morning to start the week but are currently well off of overnight highs. Gold and precious metals opened sharply higher last night on the news that Lawrence Summers has dropped out of the race to become the next Fed Chief.
This was seen as bullish for the precious metals and for risk assets in general as his exit from the race likely leaves Janet Yellen as the frontrunner for the Fed post. Summers was considered to be far more hawkish than Yellen who is a close ally of Fed chief Ben Bernanke.
It is thought that should Yellen become the first chairwoman in the history of the Fed that she will likely continue down Bernanke’s path of low interest rates and loose monetary policy. Not only did the metals complex pop on this news last night, but stock index futures also took off sending the SP500 futures up over 20 handles at one point.
On another note, Russia has agreed on a plan to remove chemical weapons from Syria, and it appears that we are getting further and further from the brink of potential military strikes. Although this situation will continue to be monitored very closely, it does look as if diplomacy will prevail and that the use of force may not be necessary.
This week will be fairly busy for investors in terms of data release. Investors will get the latest readings on CPI, housing starts, weekly jobless claims, Philly Fed, and more. The main attraction for the week will undoubtedly be Wednesday’s Fed announcement and press conference with Ben Bernanke. It is expected by a majority of economists that the Fed will announce plans at this meeting to begin scaling back its QE program. The biggest question right now appears to be by how much and how quickly.
It does seem that the notion of stimulus removal has been baked into the cake already so to speak, and it is quite possible that the announcement proves to be a non-event as far as markets are concerned. Of course, should the Fed take a more aggressive approach than anticipated, it could send markets and risk assets lower.
The gold bears are back in control right now with gold having broken a key trend line and with prices now trending lower on the daily time frame. Thus far, the $1300 level has held, but could give way to additional selling depending upon Wednesday’s Fed statement. The August low around $1275 would be the next area of support, and below that the market would likely target the June lows at $1182.60. The bulls must take trade back above the key 50 day EMA at $1353.60 in order to renew buying interest. Should this occur, it could set up a test of the broken uptrend line at the $1387-$1389 area.