Gold prices are under some pressure this morning to begin what will likely be another light volume holiday shortened trading week. This light volume environment can make for very boring trade as well as very erratic trade as liquidity is not at normal levels. In addition, year end position squaring can add to the volatility as well.
This will be a very light week data-wise. Today, investors will get the latest readings on pending home sales as well as the Dallas Fed Manufacturing Survey. Tomorrow brings the Case-Schiller Index, Chicago PMI and consumer confidence. Markets will be closed Wednesday in observance of the New Year’s Holiday. Thursday will bring weekly jobless claims, PMI Manufacturing data, MBA Purchase Applications, construction spending and ISM Manufacturing data. On Friday, investors will hear some commentary from several Fed officials including Jeremy Stein, Charles Plosser and Ben Bernanke.
Gold continues to put up a good fight at current levels, but whether or not the bulls can continue to hold here remains to be seen. The trend in gold prices remains clearly lower, and as we have discussed in numerous posts, the gold bulls have simply not been able to put together a rally of any meaningful substance in quite some time. This is likely keeping more would-be buyers out of the market and perhaps perpetuating the downside in gold prices.
The June lows in gold remain the big level to watch. Thus far, the bulls have held one test of this level successfully. If there are more attempts at this level however, the going gets a lot tougher for the bulls. A breach of the June lows could set the stage for another very large leg lower in gold prices, and this level appears to be the major battleground in the near-term. Looking at the weekly time frame, a breach of the June lows could possibly trigger a slide that could potentially take gold to sub $1000 levels. On the other hand, if this level holds on another test, or if the bulls are able to start some positive momentum here in the coming sessions, then a large scale short covering rally could ensue. It is also quite possible that fresh buyers may then reenter the market as the selling may have exhausted itself.
