Market Overview

Follow-Up: Gold Continues Its Slide


Yesterday, in my post entitled Has the Yellow Metal Lost Its Luster?, I wrote that gold had room to fall before I would start buying. Gold is down about 12 bucks on the day to around $1575. With the risk of further Fed action subdued in the near term, gold bugs fear that the liquidity that fueled gold higher could be petering out. However, it seems more likely that inactivity by the Fed is being replaced by activity by other central banks, and gold is not recognizing this. Since Operation Twist was announced, the European Central Bank enacted two Long Term Refinancing Operations, the Bank of England increased its QE program, the Bank of Japan continually intervened to weaken the Yen, the Swiss National Bank continued to print Francs to keep the Franc artificially low, and the People's Bank of China cut rates in the face of a slowing global economy, just to name a few. So why isn't gold budging?

golds_gpf_5.21.12.jpg It just feels as though gold is set to move sideways until the Fed is forced to act. Yesterday, I said buy gold on dips into the low 1500's with the idea that a continued consolidation back to trend at these levels would be the deciding point. The technicals seem to indicate that nibbling in the 1530-1550 range seems about right with a stop just below 1525, say 1520. A break below 1520 would be somewhat catastrophic, whereas a hold of that level would probably target 1625-1635 if 1600 can be broken. There is definitely room to trade here so prepare for what I see as big swings in both directions.

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