Tuesday, February 24, 2009

Further Easing of Fear: Gold Down $25.50

Gold futures fell today for a second straight session. Gold for February delivery closed at $969.10 an ounce, down $25.50, or 2.6%, on the Comex division of the New York Mercantile Exchange. It surged above $1,000 on Friday.

Gold has been climbing more as a "flight to safety" versus for "fear of inflation" reasons. Thus the drop in gold over the last two days has to be viewed as an easing of fears about the global economy.

In addition, some of the decline should be attributed to the "round number phenomena", whereby at key round numbers, such as 1,000, commodities, stocks, and indexes tend to pullback for awhile before heading higher, as many traders take profits at round numbers.

Hint to grad students and other college students: There's a great paper to be written examining how big the "round number phenomena" really is. Look at key prices around a number of commodities, stocks and also indexes. Be sure to email me a copy of any paper you write.

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