Gold Forecast for the Week of January 2, 2012, Technical Analysis

Gold market rose at the end of an otherwise poor week as gold traders stepped in and bought the yellow metal at the $1,550 level. The level is right in the middle of the support zone that we see between $1,500 and $1,600 – and this bodes well for the bulls going into the new trading year. The level has been supportive in the past, and the Thursday hammer at this level suggested that we are starting to see the bottom of the downdraft. The Friday session rose quite vigorously, and this sets up for more strength going forward for the week.

The longer term picture would also suggest that the market could rise as well, given the problems with owning Euros, Pounds, and the possibility of easing coming out of the Federal Reserve. The overall trend is still up as the recent pullback doesn’t come close to changing that. The last eleven years have been positive for the gold markets, and there is no reason to think this is about to change anytime soon.

While going forward the market might not be the same straight shot up that we have seen, the fundamentals continue to look strong, and the market’s latest selloff came in the end of year book squaring that we normally see. The real tell will be in the month of January as traders come back to work. The highs in this market have been getting lower, so the bounce back will more than likely be a bit choppier in the future.

We like buying this market on dips, and with Friday’s action, we are even willing to step in now as the market looks set to rebound. The value of the US dollar will continue to work against gold, but in the long run – both really can rise. In fact, that was the norm for quite some time, despite what most new traders believe. With this in mind, we are buying on dips as long as the market stays above the $1,500 level going forward. Selling isn’t an option even if we break that level, as there are serious support levels below as well.