The gold market has had a very interesting overnight session and start to the new trading month. After opening lower last night, the gold market sank to within striking distance of the early November lows. The market then reversed course, and as of this post is trading up over $22 per ounce at $1197 and change.
The Swiss referendum on gold which took place yesterday was the primary driver of overnight action in the gold market. The Swiss vote was decidedly against the SNB holding 20 percent of its reserves in gold. A lot of tension had built up around this referendum, and market action suggests this was a good case of “Sell the rumor buy the fact.”
The move lower in gold and subsequent rally higher has sent shorts scrambling to cover positions, and the market appears poised to try to retake the $1200 per ounce level. One could argue that now that the uncertainty surrounding the vote has passed, gold may be able to find some decent footing. In addition to short covering, it appears that physical buyers have stepped in and are scooping up gold at what may be perceived as bargain prices. On top of this, Japan’s credit rating was downgraded which may also be adding fuel to the fire.
The OPEC meeting has come and gone as well, removing some degree of uncertainty from the marketplace. The group has elected to leave production quotas unchanged in what may be viewed as a strategic long-term move. While lower oil is generally considered bearish for gold prices, the fact that some uncertainty has been removed may work in gold’s favor. In addition, some analysts feel that oil prices are likely reaching the end of the prolonged sell off.
Also potentially fueling demand for gold is lower equities this morning. More weak data from China along with ongoing concerns over Japan and Europe are weighing on risk appetite. Lower stocks may potentially be one of the keys to higher gold prices.
The rest of the week will be data-rich with the latest readings on manufacturing, factory orders, weekly jobless claims and non-farm payrolls data for November. A soft jobs report could potentially drive stocks lower and provide some support to gold prices.
From a technical standpoint, the gold bears remain in control but the bulls are knocking on the door. The gold bulls must take out the recent swing high in the $1208 area to attract more fresh buying interest. Although the dollar is weaker today, current levels being seen in the dollar index may continue to act as a barrier to significantly higher gold prices.
