Gold Prices Decline Despite Continued Fed Easing
?? Fundamentals
Gold bulls may be getting nervous, as futures prices moved sharply lower despite an announcement by the Federal Reserve that a new bond buying program would be implemented. The program calls for the purchase of $45 billion of Treasuries each month, which would further expand the Fed’s balance sheet and is likely viewed as inflationary for the U.S. economy.
Normally, Gold prices would rally on such news, but the nearly $30 price decline during Asian market hours surprised some traders and may signal that further price weakness may be ahead.
Some analysts believe many traders may have taken advantage of a brief rally right after the Fed announcement to liquidate some long Gold holdings ahead of year end, as market liquidity is expected to decrease, as traders take time off for the holidays. In addition, concerns that no agreement will be in place by year-end to forestall the so called “Fiscal Cliff” may have some traders trimming positions in “risk” assets, such as commodities.
With spot prices now trading below 1700.00, we may start to see some renewed buying interest from India and China, who are the two largest buyers of physical Gold. However, should significant cash market buying fail to materialize at current price levels, we may see Gold extend its price weakness going into the 1st quarter of 2013.
??? Technical Notes
Looking at the daily chart for February Gold, we notice the steep sell-off on Thursday, as prices failed to rally after the Fed announcement of further bond purchases. It appears that the failure of prices to hold the rally above the 20-day moving average triggered some short-term momentum selling pressure.
The 14-day RSI has started to move lower, with a current reading of 43.20. The next major support point for February Gold is seen at the 200-day moving average, currently near 1668.60, with resistance found at the December 12th high of 1725.00.
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