The Yellow Metal Becomes Clouded

 | Nov 17, 2011 | 2:00 PM EST  | Comments
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Gold futures prices have backed off this week, and the bullish, near-term, technical posture of the market has somewhat deteriorated. From a fundamental perspective, gold market bulls are confounded by the inability of the perceived safe-haven yellow metal to advance in price amid an uptick this week in the European Union (EU) sovereign debt crisis.

December Comex gold prices have backed off around $50.00 an ounce from last week's high of $1,804.40, which was a seven-week high. Recently, on any given trading day, gold market watchers have wondered whether the precious metal will act as a protective asset amid the machinations of the ongoing EU debt crisis or if it will take a risk-asset role and follow the general daily price trend of the raw commodity market sector. Each trading day has been a coin-toss as to which will scenario will play out.

The value of the U.S. dollar against other major currencies of the world has appreciated this week, as evidenced by the U.S. dollar index scoring a fresh, six-week high. The dollar index is a basket of six, major world currencies weighted against the greenback on a composite index price. The rallying dollar index during the past few weeks has been a significantly bearish counterweight to gold prices. Aside from the occasional trading days when gold and the dollar index are both appreciating on safe-haven buying interest, the gold market typically experiences selling pressure on days when the dollar index is higher.

The gold market has acted more like a commodity risk asset than a safe-haven asset in the past few weeks, as the EU debt situation has continued to fester. However, it is likely that if the crisis escalates then gold will be viewed by most in the market place as a safe-haven store of value and see increased investor demand.

From a technical perspective, the near-term posture of the gold market still favors the bullish camp, as December gold futures remain in a seven-week uptrend on the daily bar chart, albeit, now just barely. From a longer-term, technical perspective, gold futures prices remain in a solid, 10-year uptrend from the 2001 low of $255 an ounce.

In order to produce near-term, technical damage, which would begin to suggest that a near-term market top is in place, gold futures prices would have to drop below the strong technical support at the November low of $1,681.20. Psychological support is located above that key chart level at the $1,700.00 level. In the meantime, if gold prices push above the strong technical resistance at the November high of $1,804.40, the bulls would regain upside, near-term technical momentum, which would then suggest a challenge to the all-time record high of $1,923.70, basis the December futures contract.

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