Did the Fed comments trigger the major gold spike and relapse?

“Gold prices rose sharply when electronic trading opened on Sunday evening in New York. The prices of silver, platinum, and oil rose too. All then relapsed over the course of Monday trading. Equities fell and then stabilized. This is a preliminary discussion of what appears to have been happening.

Shortly after Comex trading opened Sunday at 6 p.m. EST there was a surge in trading across markets. Gold rose sharply on around 4.3 million ounces of contract purchases over 32 minutes. IT WAS NOT ONE LARGE TRADE. This suggests it was computer-generated buying set off by prices breaking above technical analysis buy trigger price levels.

Importantly there also were large trades buying petroleum, silver, and platinum. The buying was across several markets, but not as broad-based as often happens when an exogenous economic or political factor triggers computer-generated buying or selling at hundreds if not thousands of individual entities trading based on the same technical patterns.

Equally important was the sell-off in the S&P 500 equities prices.

The trigger may have been Fed Chairman Powell’s comments Friday that financial markets had ‘gotten ahead of’ actual economic conditions, becoming overly enthusiastic about possible interest cuts in the immediate future. He said, in line with CPM’s analysis at the time, that a pause or end to rising interest rates did not necessarily indicate an imminent decline in interest rates. The market consensus is that rates will continue around current levels until March or May at least, with any declines depending entirely on the state of overall economic conditions. It will take clear signs of much weaker economic conditions for the Fed and other monetary authorities to begin any significant program to decrease short-term interest rates.

The most significant factor will not be known until Tuesday. Data that will show whether the buying was either (a) slop-loss liquidation of short positions in gold, silver, platinum, petroleum, and other markets (and long positions in U.S. equities) or (b) fresh long buying. The nature of the trades Sunday, which will become apparent with open interest data released Tuesday, will weigh heavily on whether the buying will be sustained or whether it was a short-lived phenomena.”