December Gold Rebounds After Testing Major Bottom

December Comex Gold futures rebounded on Monday after briefly taking out the December 31, 2013 bottom at $1185.00. The reaction to a test of this zone did not come as surprise since short-sellers often take profits at major bottoms.

The early weakness was follow-through selling following Friday’s better-than-expected U.S. Non-Farm Payrolls report. The jobs report created a spike in the U.S. Dollar which encouraged investors to dump their dollar-denominated gold futures contracts.

A reversal to the upside today will not change the trend to up, but because of the long-term fundamentals should allow the bearish traders to re-short at more favorable prices.

November crude oil prices are trading slightly better. Despite the sharp sell-off triggered last week by OPEC price cuts, the market seems to be stabilizing around the $89.56 area. The weaker U.S. Dollar may be helping to underpin prices today.

Technically oversold factors may also be helping to give the market some support. The long-term outlook is still bearish because of oversupply, however, new sellers appear to be scarce at current price levels. Overproduction by the U.S., Russia and Saudi Arabia are beyond the huge glut in supply.

Improvements in drilling by U.S. firms is expected to continue. Russia may also continue to dump oil on the market in order to generate cash. The country is strapped at this time because of the inability to borrow money because of the sanctions imposed on it by the U.S. and Europe. Last week, Saudi Arabia said it would reduce prices for some major buyers, but failed to announce a production cut. Low demand from China because of slow growth is also hurting prices.

The EUR/USD failed to follow-through to the downside, following last week’s sharp sell-off. The longer-term fundamentals remain bearish, however, over the short-run, prices may rise a little due to necessary adjustments triggered by last week’s monetary policy announcement by the European Central Bank.

Traders had priced in additional stimulus measures by the ECB, but in its statement it decided to leave its current measures in place. These include low interest rate loans to banks. The ECB, however, left open the possibility of more aggressive stimulus including quantitative easing later, if the economy doesn’t improve or shows signs of worsening.

The GBP/USD traded flat to slightly better. Technically oversold conditions and position squaring ahead of Thursday’s Bank of England monetary policy meeting may be helping to support prices today. Last week’s weakness was fueled by negative comments from a BOE official and the better-than-expected U.S. jobs report. The current price action suggests that traders believe the central bank will continue to postpone its first interest rate hike in several years until the economy stabilizes and shows improvement in all sectors.