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Gold prices seem to have stabilized today, trading once again above the $1,300 an ounce mark.
This follows a tumble yesterday of more than $40 an ounce to as low as $1,284 an ounce. That price was nearly a two-month low and put the precious metal down 23% in 2013.
At that level, gold was trading more than $50 below its 50-day moving average. To technical analysts, this confirmed the downtrend in the precious metal, bringing about a wave of selling by those who strictly follow the charts.
However, there were factors at play in gold's selloff other than technical selling.
Why Gold Prices Fell: Government Shutdown Factor
One reason Wall Street pundits gave for the drop in the gold price was risk aversion because of the partial U.S. government shutdown. In other words, traders sold assets with higher price volatility like gold and other commodities.
But stocks were up and U.S. Treasury bonds were down – only in the wacky world of Wall Street, where, thanks to the U.S. Federal Reserve's quantitative easing (QE), stocks are no longer considered a risky asset, but gold and Treasuries are.
Let's take a quick look at what gold did during the last government shutdown.
In the period between Dec. 16, 1995, to Jan. 6, 1996, gold merely bounced around a bit before falling slightly a few days prior to the actual shutdown.
Translation: The government shutdown was a non-event for the gold market.
Jonathan Citrin, founder and executive chairman at investment advisory firm CitrinGroup, told MarketWatch "Gold… now seems to shrug off the majority of fears in the shadow of yet another round of bickering in the nation's capital."
Why Gold Prices Fell: Wall Street Keeps Selling
The real factors behind yesterday's selloff in gold are not risk aversion due to politicians arguing.
Here is what really happened…