Futures betting on future gold prices surged to their highest in two weeks on January 2, as markets responded to news that Washington lawmakers had reached an agreement on U.S. fiscal policy.
Surging gold futures
February gold surged to as high as $1,692.60 per ounce on the Comex division of the New York Mercantile Exchange, according to Bloomberg. This figure represented the highest value for a most-active contract since December 18. MarketWatch reports that February Comex gold was trading at $1,690.80 an ounce.
Equities also rose, and these risky assets pushed higher after a bill crafted by the Senate was approved by the House of Representatives, paving the way for a compromise on the budget disagreements of Washington officials, according to the news source.
"There seems to be a collective sigh of relief as the full force of the U.S. fiscal cliff that could have dragged the world’s largest economy into a recession has been averted," analysts working for Brown Brothers Harriman wrote in a research report, the media outlet reports. "However, the results do not seem particularly satisfactory as the debt ceiling and spending cut decisions have been postponed for several weeks."
Another factor that was credited with having an impact on the price of gold futures was the value of the U.S. dollar relative to other currencies. The ICE Dollar Index was trading 0.4 percent lower at 79.433, according to the news source.
Bloomberg reports that the index comparing the greenback to other currencies fell by as much as 0.6 percent during the day.
Steve Scacalossi, a New York-based vice president at TD Securities Inc., wrote in an email that commodities as a whole benefited from the falling value of the dollar, according to the news source.
When the greenback declines, it makes contracts denominated in the dollar cheaper for buyers using other currencies and generally boosts demand for these raw materials.
Scacalossi added that news that lawmakers have reached a compromise helped to bolster markets.
President Barack Obama indicated that he plans to sign the compromise into law, which will prevent the nation from suffering more than $600 billion in higher taxes and spending cuts. Taxes will be raised on individuals making more than $400,000 per year and families making more than $450,000.
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