What Has Happened In The Gold Market?

Since peaking shy of the $2000.00 level at $1953.00 in September 2011, gold has lost over $800.00 based on its November 7 low of $1131.10.

Just as the gold miners started to open new mines to ramp up production and speculators jumped on board, the bottom fell out.

Out Of Gold And Into Equities

The primary reason for the decline was the recovering U.S. stock market and expectations for higher returns in equities. As this scenario unfolded over the next few years, the decline in gold accelerated, as investors fled the sector to focus on equities.

Along the way, there have been a few counter-trend rallies, the most recent of which took place over the past five past trading sessions as gold flirted with the psychologically important $1200.00 level.

Related Link: How Bad It Has Gotten For Gold

Swiss Referendum Fails

The catalyst for the rally was the November 30th referendum in Switzerland that would required the Swiss National Bank to increase its gold reserves. The referendum called for the Swiss Bank to expand its reserves from the current 7 percent level to 20 percent.

Unfortunately for "gold bugs," the referendum failed miserably; the immediate reaction in the marketplace was fast and furious.

After ending Friday's session at $1175.50, it opened $16.00 lower in Sunday's premarket trading and continued in that direction. The failure of the referendum forced the buyers at the $1200.00 level out of their longs and encouraged the shorts to add to their winning positions.

Many were expecting a test of the current low for the move at $1131.10.

However, that failed to materialize as gold found support ahead of that level at $1141.70 and began to rebound.

Other factors contributing to the vicious snap back rally may have been India's easing of its import restrictions and Moody's reduction of Japan's sovereign rating.

At the time of this writing, gold is attempting to reclaim the $1200.00 level in Monday's session. So far, it has clawed its way back over $1200.00 and may be heading for its November 21 high ($1208.30).