CAUGHT SHORT: Gold price spikes $40 higher in huge volumes
In early afternoon trade on the Comex market in New York December gold futures changed hands at $1,321.50 up $39 from yesterday's close and near its highs for the day of $1,323.80. By 1pm EST the number of December gold contracts traded had exceeded 180,000, already 10% more than average daily volumes on the exchange.
The "compacted nature" of gold's rise was an indication of technical short covering according to CME, the operator of the Comex market.
Gold's status as a safe haven appeared to be tarnished during the protracted Washington standoff over the government shutdown and raising the debt ceiling with the metal hardly moving throughout the two-week saga.
But the deal reached between Democrats and Republicans is essentially just delaying any concrete steps to tackle the US deficit and debt problems and sets up a showdown again early next year.
US politicians agreed on a plan signed by President Obama to fund the federal government through January 15 and lift the debt ceiling for government borrowing to continue till February 7.
As a consequence any tapering of the Fed's stimulus program which pumps $85 billion of easy money a month into financial markets is likely to be postponed beyond this new timeframe.
The bank’s quantitative easing program, which has flooded markets with more than $3.7 trillion, weakens the dollar, increases the risk of inflation and in turn boost the value of gold.
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