NEW YORK (
were swung wildly Monday as the Federal Reserve's consideration of further stimulus measures sparked debate between stocks and the safety of gold.
Gold for December delivery settled down $5.70 to $1,791.70 an ounce at the Comex division of the New York Mercantile Exchange. The
has traded as high as $1,841.20 and as low as $1,781.20 while the spot gold price was committed to selling off more than $40, according to Kitco's gold index.
settled down 40 cents at $40.54 an ounce. The
was relatively flat at $73.70.
Gold prices were all over the map Monday, rising by $20 then falling by as much as $50 before climbing back into positive territory to then close in the red. With volume thin on the last week of summer and as hurricane Irene left a lot of traders at home, volatility could continue in gold prices.
With the possibility of more money printing on the table from central banks, traders are vacillating between buying riskier stocks, which would benefit from more stimulus, or safer gold, which will protect against any devaluation of currencies -- a de facto result of more money printing.
World financial leaders didn't necessarily green light more monetary easing over the weekend but did leave the door open for more accommodative policies.
At the annual Kansas City Fed meeting in Jackson Hole, Wyo. on Friday, Fed Chairman Ben Bernanke pushed any monetary easing policy down the road to the next Fed meeting in late September, which will now be two days instead of one. Without getting into details about any plans, which could consist of something drastic like more money printing to something less groundbreaking like selling short-term securities and buying longer-term securities to keep long term interest rates low, Bernanke said the Fed was ready to act if the economic situation called for it.
Bernanke's speech puts the pressure on August's jobs number, which will be released this Friday, with the private sector expected to add 100,000 jobs but the unemployment rate expected to rise to 9.2%, according to
. Markets will also shine the spotlight on Thursday's ISM reading - the manufacturing index could slip below 50, which means no expansion.
The Fed is "going to have a ton of data over the next two weeks coming into that meeting," says Phil Streible, senior market strategist at MFGlobal. "If we see unemployment take another turn, no pick up in housing,
the Fed will probably come in and do something." Already Monday pending home sales fell 1.3% in July, the Dallas Fed Manufacturing Index fell 11 in August and the IMF downgrade U.S. growth for 2011 to 1.6% from 2.5%.
Streible thinks the Fed be forced to unveil something new. "I felt the most important thing
from Bernanke's speech Friday is that they changed the meeting from a one day to a two day, which tells you the situation with the economy is extremely serious."
New IMF chief, Christine Lagarde, also joined the conversation over the weekend, urging central banks to leave monetary policies accommodative -- a subtle hint to the European Central Bank, which has raised rates this year to 1.5%.
Low interest rates and the hint of more monetary easing of any kind are good reasons to buy gold. Low interest rates, with inflation steadily climbing higher, means negative real interest rates , or the interest rate minus the inflation rate. In the U.S., counting overall inflation, the interest rate is a negative 3.6%, meaning that one dollar is actually worth 96.4% rather than 100% of its original value.
In economic backdrops like this one, gold becomes a more attractive asset to own because it is literally worth more than a dollar in the bank. Many thought gold's recent short term bubble had burst last week when prices plunged more than $200 in 2.5 days, giving up half of its gains that it spent two month accruing.
Streible says any current rally is a continuation of the "melt-up," which started mid-day Friday. The levels hit this morning, Streible says, represents a 62% retracement from that $1,700 low hit last week. "If we see a break below $1,800 selling will accelerate," noting that short sellers have entered the gold market which could drag prices lower. Selling did propel gold prices under the $1,800 mark but bargain hunters stepped into buoy prices.
"People are not as overweighed as they were so I don't think the selloff will be as aggressive," says Streible.
Stocks were also higher open Monday, which, if they continue, could be a headwind for higher gold prices. "We think gold has entered a major correction that takes prices down to the $1,450 to $1,550 an ounce region," wrote Mark Arbeter, chief technical strategist at
Standard & Poor's
. "Sentiment on gold and silver is very bullish, and from a contrarian standpoint, that is bearish, in our view."
China also took some modest steps to stem high inflation Monday by raising the amount of money banks are forced to hold in their reserves, thereby draining more money out of the system. The central bank has used this tactic more forcefully than hiking interest rates but gold has been ignoring these attempts with inflation at 6.5% and interest rates at 3.5%.
was down 0.79% to $17.49 while
was falling 2.06% at $15.66. Other gold stocks,
were trading at $68.51 and $19.27, respectively.
Written by Alix Steel in
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