Gold is falling fast after a sharp surge upward around 8:30 AM ET. It just dropped by about $20 an ounce:
The shiny yellow metal is now down 1.1 per cent. It’s unclear what is driving the sharp move.
This follows a strong day for gold yesterday, as Deutsche Bank commodities analyst Xiao Fu explains in a note this morning:
Yesterday’s strength in the gold market was bolstered by a weak trade-weighted US dollar. The dollar’s weakness coincided with the release of Initial Jobless Claims which were higher than expected. On the back of this data point we suspect that the market adjusted with a thought towards the read-through to the Fed, given its focus on employment in the US, certainly data of this nature bolsters the case for continued ultra-accommodative monetary policy. We also note the potential for further increases in US housing prices could be a powerful force in lifting the velocity of money in the US going forward, we believe that this is something that investors are debating. An increase in velocity could be inflationary in our view given the expansion of the Fed’s balance sheet over the past five years. From a trading perspective there is room for the gold price to move towards the USD1,700/oz level, which would represent a considerable resistance level in our view.
One thing is clear, though: investors bought a lot of stocks this week.