Gold prices are flat to slightly higher to start trading on Friday. The market appears to be trying to stop the bleeding that it began experiencing earlier in the week as prices tumbled nearly $50 per ounce between Monday and Wednesday. Gold prices are now below some meaningful support levels, most notably the lows reached on November 12th and the swing low reached on October 15th. From a technical standpoint, this does set the stage for additional selling pressure in the yellow metal.
The talk of tapering by the Fed will likely continue to dominate talk as investors await more clues as to the timing and extent of any tapering planned by the central bank. We realize that we may sound like a broken record on this point, but it is in fact an issue that can determine the near future for gold and precious metals.
The fact is, everyone knows it is coming, we don’t feel there is any disagreement about that. Precious metals have been sold off on the notion that the Fed is gonna ease off of the gas. So be it. The Fed has also in the meantime reiterated that loose monetary policy is here to stay for the foreseeable future. Rates are likely to stay at very low levels for some time. This is bullish for gold and precious metals. It seems that the precious metals market has gotten overly bearish on the tapering issue and that once the tapering does begin, we could see the gold market turn around.
We have talked many times in recent posts about the stock market and how once the music stops investors may flee equities for other asset classes. Gold could stand to benefit a great deal if or when this occurs. Unfortunately, gold investors will have to wait until that time comes. In the meantime, gold may stay under pressure with the occasional relief rally here and there but overall it seems as if gold does not yet have a catalyst for a meaningful rally higher. Perhaps once all the tapering talk is put to bed we will see such a rally begin to develop.
The dollar is down today giving gold a boost while crude oil is lower once again. The dollar is worth continuing to watch, as recent strength in the greenback could be on shaky footing and a break lower in the dollar may support a rally in gold prices.
While we feel that some short covering will likely take place, and that we may see some relief rallies in the near future, gold looks bearish on the daily chart. In fact, the metal does now appear to be headed for a re-test of the June lows in the $1182 area. This area could potentially prove to be an excellent buy, but we also feel that the timing of any Fed action will play a key role in gold prices. We, like everyone else, will continue to monitor the Fed and suspect that once the Fed does start moving gold may find some more solid footing.
