Gold Rebounds on Syria Attack Speculation

December Gold prices traded weaker early in the session as speculators pared positions after President Obama announced over the week-end that he was seeking Congressional approval before attacking Syria. This confused traders since the news came after Obama had failed to attract the international support for the action he was expecting. With the impending attack taken off the table for at least a week, speculators reduced exposure in the gold market.

Shortly after a bullish ISM Manufacturing PMI report encouraged additional selling, President Obama took to the airwaves, looking to drum up additional support for his attack plans. December Gold futures quickly turned around after House Speaker John Boehner said he supported President Obama’s call to action against Syria. Not only did he offer his personal endorsement, but he also called on colleagues to support the cause, sending gold prices sharply higher.

Although it is going to take a few days for Congress to get through the public hearings and vote on the attack, it looks as if the action is back on the table, forcing speculators to react accordingly. Congress reports back from vacation on September 9, but it looks like the wheels are in motion for a fast debate and a quick vote. This could stir up the volatility in the gold market for the next few days.

Technically, December Gold is currently in the midst of a retracement from the top at $1434.00 to today’s low at $1373.60, but today’s upside action suggests the market may have enough momentum to challenge the top by the end of the week. U.S. economic data throughout the week could slow down the rate of ascent if the dollar strengthens, but it looks like gold speculators may only be interested in the impending attack at this time.

Since topping at $112.24, October Crude Oil futures have been trading sharply lower, coming dangerously close to taking out the recent bottom at $103.50 and changing the main trend to down this morning. With Obama calling for support for an attack on Syria and House Speaker Boehner supporting the idea, it seems like just a matter of time before the military action will take place. This triggered a sharp retracement in crude oil with the market taking back more than half of the break from last week’s high.

The upside momentum from the short-covering rally triggered a surge into the retracement zone at $108.23 to $109.17. Sustaining a move through this zone could mean a test of the main top at $112.24 within the next week. Slowing down the momentum could be a stronger dollar. The dollar could strengthen on the heels of strong U.S. economic data throughout the week.

The strong U.S. PMI data coupled with the surprise increase in construction spending helped weaken the EUR/USD. Traders appear to be bracing themselves for the Fed to begin tapering its monetary stimulus later this month. In addition, investors are also beginning to price in fresh dovish comments from the European Central Bank when it meets later this week.

GBP/USD traded higher for the fifth straight day on the heels of stronger U.K. economic data. The rally should be close to coming to an end since it has reached the retracement zone created by the break from 1.5717 to 1.5427. This zone is at 1.5572 to 1.5606. In addition, with the Bank of England set to release its current monetary policy statement later this week, investors may decide to begin paring positions.