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James Hyerczyk
Comex Gold

Gold futures are edging lower, while posting an inside move on Friday shortly ahead of the regular session opening. The price action suggests investor indecision and impending volatility. The inside move could also be a sign that momentum may be getting ready to shift, at least over the short-run.

At 10:34 GMT, December Comex gold is trading $1914.40, down $3.00 or -0.16%.

The main trend is up for all major time frames – daily, weekly and monthly. No one is doubting that, but we do feel market may be ripe for a near-term pullback based on its muted response to the overnight events.

All week we’ve been reading headlines saying safe-haven demand fueled by escalating sessions between the United States and China were driving gold prices higher. Overnight, China finally responded to the abrupt closing of its Houston consulate with the announcement that it was throwing the U.S. out of its consulate in Chengdu.

Gold didn’t rally on the news and is trading lower. This could turn out to be a “buy the rumor, sell the fact” event. If it is then this will give gold investors an excuse to book profits and play for a better entry at a lower price.

Gold traders also failed to respond to weaker demand for higher risk assets. Global equity markets are down. The higher-yielding Australian and New Zealand Dollars are also down. The Euro is posting the same chart pattern as gold.

The inability to rally, given all of these factors that were given credit for driving up gold prices earlier in week, showed at least make longs a little nervous.

The overall trend is expected to remain strong with the U.S. poised to inject more fiscal stimulus into its economy, but the short-term price action suggests this bullish news may already be priced into the market.

We said several times over the past few weeks that fiscal stimulus tends to generate strong short-term spikes, but monetary stimulus is supportive over the long-run. We may be witnessing this at this time.

Daily Forecast

Gold may be vulnerable to a short-term correction. Our swing chart analysis suggests a $38 break from a high will be a normal reaction. This makes $1889.10 a reasonable target over the next 2 to 3 days if there is a correction.

As I’ve written numerous times, gold is not a safe-haven. Given the current bearish fundamentals, look where the money went overnight – Treasurys, the U.S. Dollar and the Japanese Yen. This is another reason why I don’t think it would be a bad idea to start lightening up on the long side.

For a look at all of today’s economic events, check out our economic calendar.

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