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Gold Consolidates Above Multi-Month Support Zone
By Kira McCaffrey Brecht of Kitco NewsMonday December 16, 2013 8:55 AM
(Kitco News) - Feb Comex gold futures are trading quietly in a short-term holding pattern ahead of this week's U.S. Federal Reserve meeting. In recent weeks, gold action has turned sideways as the market consolidates between support and resistance.
A potential volatility pick-up is likely after Wednesday afternoon's Federal Open Market Committee statement and the subsequent press conference by Fed Chairman Ben Bernanke. The Fed is slated to release its statement at 2 p.m. ET Wednesday, with the press conference at 2:30 p.m. ET.
Looking at the daily chart, since Nov. 21, the recent downtrend has stabilized. Trend action has turned neutral between resistance at the $1,267.50 high hit on Dec. 10 and support at $1,210.10 scored on Dec. 6.
Daily momentum indicators are mostly neutral. For example, the nine-day relative strength index climbed higher out of oversold territory in early December, but has now flattened out right under the 50% mark.
The trend picture remains weak, with the market holding under the 20-day and 40-day moving averages. But, those levels could be violated on a knee-jerk rally, if gold pushes higher mid-week. The 20-day moving average lies at $1,243.20 and the 40-day moving average comes in at $1,279.70. Traditionally, trend followers are bearish on a market when price is under those short-term moving averages and for now gold is trading under those levels.
Daily Bollinger bands have narrowed in recent days as volatility has contracted. Be ready for an expansion of volatility and a possible explosion higher or lower later this week.
Big picture? Gold is sitting within striking distance of major multi-month support at the late June low at $1,187.90. If short-term support at the $1,210 zone comes out the bears will be gunning for a retest of the late June low. That level offers major support and is unlikely to be breached on a significant or lasting basis short-term. However, there are a number of scenarios on how gold could react to either tapering or no tapering this week.
If the Fed initiates a first tapering move this week, or a cutback in its monthly asset purchases, then that type of action has been largely "priced" into the gold market with the declines seen in recent months. A potential scenario of a "sell the rumor, buy the fact" type of trade could evolve.
Nonetheless, the bears are so close to that long-term support there could be a contingent in the market that could want to push gold prices to test that level at $1,187.90.
If an upside move emerges, look for a punch above initial resistance at $1,267.60 to open the door to a test of the 40-day moving average at $1,279.70.
Bottom line? There is potential for a whipsaw move that is reversed intraday after the Fed meeting. Short-term traders will want to be nimble and book profits quickly. For swing traders, the weekly close will be important—monitor where the gold market closes out the week on Friday.
Kira Brecht is managing editor at TraderPlanet.
By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht
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