Gold Forecast December 13, 2011, Technical Analysis

Gold markets fell hard on Monday as the trading world was rocked by several negative headlines, not the least of which was the possible downgrading of the EU countries by Moody’s. The possible downgrade by two of the three major credit agencies is enough to spook the markets, and the commodities markets were all hit hard as a result.

The level that the market sits at presently is just above the $1,650 level, but well within our support band between the $1,600 and $1,700 level. We are still keen on owning gold long term, but at this point in time, the markets will need to settle down – something we haven’t seen yet. The situation in Europe will continue to increase the volatility in all markets, and ironically – eventually drive the price of gold higher as it goes back to the “safety trade” that it can sometimes be. While this certainly hasn’t been the case lately, the argument will still hold over time that when push comes to shove, traders like owning some gold as the uncertainty increases around the world.

With this in mind, we are simply waiting to see that all-important support area come into play. While we are in it, we are just skimming the top of it and could see lower prices first. The next couple of sessions could be somewhat rocky for the markets in general, and as such we are weary of taking the trade until a couple of calm days return to the markets. With the situation in Europe seemingly getting worse, it could be a bit of a wait, but the long-term trend and this massive support area simply cannot be ignored enough to compel us to get short of gold. The last ten years have been overwhelmingly positive for the market, and as such we can only buy at this point. The formation on the daily chart of a hammer, bullish engulfing candle, or something of that sort is what we will need to see in this area to buy. Preferably after a few days of tight ranges, we will get that candle.