Nearby Gold Monthly Analysis for December 2012

Nearby gold followed through to the downside after its monthly closing price reversal top in October. Typically, this pattern leads to a two to three month retracement equal to at least 50% its recent range. Depending on the downside momentum at the time of the retracement, it may even break as much as 61.8%. 

Based on the short-term range of $1536.20 to $1798.10, the first downside target is $1667.15, followed by $1636.25. 

The longer-term range is $1944.80 to $1536.20. This range has created a retracement zone at $1740.50 to $1788.71. Last month, gold tested the 50% level at $1740.50. The actual high was $1757.50 before sellers hit the market.

 November’s lower close also put the market on the bearish side of an uptrending Gann angle at $1760.20 and a downtrending Gann angle at $1704.80. This is likely to lead to fresh selling pressure during December.

 Besides the retracement zone at $1667.15 to $1636.25, an uptrending Gann angle at $1648.20 is a potential downside target.

 Fundamentally, investors and traders continue to see-saw between treating gold as an investment and as a reserve currency. With money flowing into equities, gold has taken a backseat in the investment community. The stronger U.S. Dollar should be supportive for gold. It may be underpinning the market at times, but it is not producing the rally that many traders have anticipated.

 If gold tests the retracement zone as expected then value buyers may re-emerge, creating the demand the metal needs to overcome the reversal top at $1798.10. The failure of buyers to show up between $1667.15 and $1636.25 could mean the market is poised for further downside activity.