The market is interpreting Larry Summers's withdrawal from consideration as Ben Bernanke's replacement for head of the Federal Reserve as negative for the dollar and thus as a positive for gold this evening. The reason? - Summers's was viewed as a more hawkish replacement for the soon-to-be retiring Bernanke. That leaves the door open further for Yellen, who is viewed as very dovish and thus more inclined to stay the course on the Fed bond buying program.
Gold has responded higher on the news but has run into a solid wall of selling just above key short-term resistance at $1330. The December contract has posted a high thus far of $1336. It will take a further push through this level in either European trading or in the New York session to run the bears out who sold into the news.
I find it rather interesting to note a very large rally in the long bond as the market there is fully one point higher on the same news. In other words, US interest rates on the long end of the curve are dropping with traders seeing a dove replacing Bernanke. Of course the S&P 500 is greeting the Summers news as wildly bullish for US equities with that index clearing 1700 in Asian trade. It looks as if it is Happy Days are Here Again for equity bulls as the punch bowl will be spiked further if the current sentiment now being reflected in this overnight trading is indeed correct.
We will have to closely watch the FOMC meeting for further clues into subsequent action but for now, Wall Street loves it.
I am concerned for gold however - if it cannot clear this overhead chart resistance on news that is obviously impacting the Dollar, the Treasury markets and the equity markets to this extent, then I am not sure exactly what it is going to take to move it into a sustained uptrend. I do want to note however that there is widespread weakness in the grain markets this evening as wide swaths of the Midwest were hit with significant rains over the weekend. That will tend to pressure food prices somewhat if this downward trend continues and thus take some of the heat off the food inflation front. Also undercutting strength in gold this evening is weakness in crude oil/energies.
We wait to see what New York bring us....