Gold Forecast December 14, 2011, Technical Analysis

Gold markets were hit again on Tuesday as the Federal Reserve’s minutes didn’t mention anything about quantitative easing. The weakening of the Dollar would drive demand for gold as it always has. However, the overall economic picture is poor, and we think the uptrend should continue at one point or another.

We currently have the $1,600 level as the bottom of an area where we want to buy. We need to see a supportive daily close in order to go long of this market, and have yet to so far. Because of this, we are willing to step away from this market regardless for a few days or more. The end of the year makes for illiquid conditions in this market, and we think the downward pressure could continue for a while, albeit not as strong.

The market could be ripe for a pullback. However, we think next year the demand for gold instead of fiat currencies should continue and it should also be noted that gold only seems to be having trouble when it is priced in Dollars, not when it is priced in Pounds or Euros. Because of this, we believe this move is less about gold and more about the strength of the US dollar currently. The two can rise at the same time, and that is exactly what we think will happen in the relatively near future.

However, as it is the end of the year – we could also be seeing some profit taking as funds close out their positions in order to record larger gains for investors. The markets will be volatile until the start of next year, and even then there is no real guarantee that it will calm down overall. As long as there are issues in Europe, there will be demand for gold overall. However, we aren’t in as big of a rush to buy as we once were, given the time of year and severity of the move recently.

If the $1,600 level gives way, we will be watching the $1,500 below that for our next potential buying area. We need to see a supportive daily candle in order to buy, and until then – we are on the sidelines in this market.