Richard Rittorno: Gold prices are flat as they hover just above the 6 month low created two sessions ago and August’s support level of $1,591.81 as market participants move to the sidelines ahead of Federal Reserves’ January meeting minutes release.
Last week’s move lower along with this week’s continuing downward move is creating a technically week chart in which technical traders could be readying to move to the short side of the trade putting the bears in the driver’s seat.
This week’s price action will be key watch. Traders will be watching to see if the bulls can defend the $1,600 level after Friday’s intraday break of the key support level.
The break of the $1,600 level trigged a flood of protective stop orders adding pressure to the downward momentum.
If the bears muster a close below the $1,600 level the next support level comes in at $1,550 a level in which the bears defend successfully 3 other times in May, June and July.
Helping the momentum of the bears the past several session is also the stronger U.S. dollar as U.S. dollar index continue to hang in around the its 6 week high of 80.77. The dollar index is made up a basket of the U.S. dollar and the major currencies.
We did see a tick higher in the past several sessions during the Asian sessions which is likely explained as Asian gold dealers and Jewelers take advantage of the low prices of the shiny metal as the tick higher was very short lived.
The next catalyst for gold is the Fed’s meeting minutes which should provide a window into the central bank’s view to monetary policy. Any hint, even at the smallest level that Fed may pause its monetary easing will likely send the U.S. dollar higher putting even more pressure on U.S. dollar priced commodities such as gold. Since gold is price in U.S. dollar – a stronger dollar means it will take less $$$ to buy gold sending gold prices lower.
Readers can access the gold futures markets via the SPDR Gold Trust (NYSEARCA:GLD) ETF. The GLD has a liquid options market as well allowing readers to define risk to both the long and short side.