Gold Prices for the week of December 17, 2012, Technical Analysis

The gold markets initially rallied during the week, but fell in order to form a shooting star. This was preceded by a hammer, and as such it looks like the gold markets are a bit confused at the moment. We ended the week just under the $1700 level, which of course is an area of support.

With this being said, we still see the longer-term consolidation area of $1550 for the support area, and the $1800 for resistance. However, $1700 acted as support quite convincingly a couple of times here recently, and as a result we think this market will continue higher. It may not be over the next couple of weeks though because of the fact that the liquidity in the marketplaces will be quite then until early January. With that being said, we hold physical gold at the moment as well as the ETF known as “GLD”, one of the most liquid and tradable instruments available for the retail investor.

Looking forward, we think the $1800 level will continue to be significant resistance, but it should finally get broken during the year 2013. After all, the Federal Reserve has recently announced that it was going to extend its quantitative easing programs, and as a result the US dollar should continue to be weakened.

Above the $1800 level we see the $1900 level as the next hurdle to overcome for the buyers. We expect a lot of volatility in this coming year, as central banks fight it out in the so-called “currency wars.” There is a serious attempt to devalue currency around the world right now, and as a result this will drive people into the precious metals markets.

The gold markets can suddenly spike in one direction or the other, and we think that by holding physical gold, we allow ourselves to always take advantage of the bullishness of this market in a relatively safe way. Also, owning the GLD ETF is relatively safe as well as it is very illiquid and obviously low leverage. We don’t sell gold, we think it is far too bullish overall and there is far too much of a compelling argument to be made for higher prices over the future. It should be noted however, this is a long-term trade and not a short-term trade. On a break above the highs from both this past weekend the week before, we would be willing to go ahead and buy futures contracts again.