Gold Bulls' Grip Slipping
Today's Idea
Gold bulls appear to have lost their grip on the market, which is likely largely due to the fact that much of the panic from Europe has been priced into the market. Many traders are, instead, focused on Gold as a growth and inflation play. With the dim market outlook, inflation prospects do not look good at the moment. Technically, Gold remains in the 1745-1900 trading range. Momentum seems to be moving toward the bear camp, and the downside appears to be more vulnerable at this time. Some traders may want to hold-off at the moment and wait for a possible breakdown below 1745. Some traders may possibly wish to consider entering into a short futures position on consecutive closes below 1745. Which Gold contract traders may choose would depend on their risk tolerance.
Fundamentals
Gold futures have certainly cooled off from their high-flying mid-summer form, which is likely largely due to the lack of any bombshell news reports. On one hand, the Fed and other central banks have made conditions ripe for inflation, favoring Gold. On the flip-side, slower economic growth forecasts suggest that the global economy may result in lower inflation. The weakness in US energy prices has made a significant impact on Gold prices, as many metal traders have priced-in price softness. A slow march toward a global recession may result in precious metals losing their luster as an investment vehicle. Long-term, a case can be made for Gold as part of a balanced portfolio, but the lack of shock news could result in stagnation or, possibly, a more meaningful correction. To get the Gold bulls running again, the market may need a major event, such as a Lehman-like crisis in Europe or Greece finally defaulting and leaving the EU.
Technical Notes
Turning to the December Gold chart, we see prices mired in a consolidation pattern/mini correction at the present time. Thus far, the market has stayed above the 38.2% Fibonacci retracement level at 1744.00, which can be seen as especially critical given the fact that there is chart support in the area and very little additional support until the sub-1600 level. A breakdown below this level could also be viewed as the confirmation of a double-top pattern, which would make a breakout to the downside a sort of trifecta of bearish indicators. For the bulls to regain some of the market momentum, the price will have to take-out the 1900 level to the upside. The recent closes below the 20-day moving average suggests that a near-term high may be in place. It is also interesting to note that the momentum indicator is showing sharp divergence from both price and RSI.
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