Gold prices are moving higher today as short covering and a lower U.S. dollar index drive prices higher on a light volume day to end the trading week. Most U.S. markets will be closing early today. It was a quiet Friday in other markets, and investors seem content going into the weekend as is.
Not much has changed in the gold market in recent weeks. Gold investors, like all investors, continue to await further clues from the Fed about the extent and timing of QE tapering. It is now expected by many that we will not see any action taken this year but rather will see the Fed making some moves in the middle to end of the first quarter of next year. It is quite likely that we see a Santa Claus rally in equities going into the end of the year, and this strength in stocks may make any sustainable rallies in the precious metals complex hard to come by. Although we expect this could change once the Fed does start to taper, for now it seems investors will continue buying into the end of the year.
At this point, many believe that the Fed tapering may actually cause more bullish sentiment in bullion once it gets started, and gold could simply remain in essentially what is a holding pattern until that time.
The current conflict between the U.S. and China could certainly put a bid into gold should it escalate, however whether or not this “incident” is over with remains to be seen. It is likely diplomacy will prevail and no further aggravation of tensions will be seen.
The bears remain in firm technical control of the gold market, however it does appear that some buyers have been entering the market around current levels. This in turn has caused some short covering, but again it does seem that any rallies right now are going to be fairly short-lived. Many are expecting a re-test of the June lows around the $1182 area, and the chart is in fact pointing to this level.
It is worth noting however, that the level of bearishness in gold appears to be getting a bit extreme and that this extreme bearishness could fuel a rebound. The short gold trade seems to be getting a bit tight, and once everyone is on one side of the ship the ship normally capsizes. This is not to say that prices cannot go lower because they certainly can, but it’s worth keeping in mind. Gold will likely remain under some pressure and trade lower to sideways going into the rest of the year barring any new catalyst for bullish price action over the next few weeks.
