Gold Forecast December 19, 2012, Technical Analysis

The gold markets had an absolutely horrific day on Tuesday as they lost $28.20 an ounce. The market broke a trend line that has been relatively steady, and as such looks bearish on the margin. With all this being said, we are still not willing to sell gold at the moment because of several other factors.

The reaction on Tuesday would have been predicated upon the idea of a fiscal cliff deal possibly being in the works. If that’s the case, that’s fine, but we still think gold goes higher in the end. There might be a typical knee-jerk reaction in favor of the US dollar when that happens, but the reality is that there are much longer run fundamentals that will continue to support gold going forward.

As you can see by the chart, the 200 day exponential moving average is still below is we are currently trading. Also, it should be noted that the area that we are sitting in now is a gap that has been waiting to be filled for some time. Because of this, we think that we could see a bit of a drop from here, only to watch gold turn back around and bounce. With that being said, you should also keep in mind the fact that we are in the last two weeks of the year, and gold typically struggles in December because of the end of the year selling that hedge funds typically have to do in order to provide customers with positive statements. Simply put, they are collecting profits before going on holiday.

Looking forward, the uptrend is still most decidedly true in this market, and the central banks around the world continue to look for reasons to print their own currencies. With this being the case, paper money is losing its appeal to most traders over time, and as such we think the demand for gold will still be there. Don’t believe us? All you have to do is look and see that most of the world central banks are increasing their gold purchases, even as they flood the markets with paper. Because of this, we expect gold to be higher in 2013, and will buy supportive looking candles, especially in this general vicinity.