Gold lacking conviction ahead of holiday weekend

In the Lead: “Instance…Messaging”

A bit of an advance in European equities on the heels of rising German business confidence gave rise to modest buying of commodities this morning and pushed the US dollar a tad lower to just under the 80 pivot point on the trade-weighted index. The euro did not rise much above the $1.30 level however, despite the boost that the aforementioned economic metric provided for equities and crude oil. Euro specs can thank Mario Draghi for that. See below.

Overnight trading action saw the euro dipping once again and nearing an 11-month nadir after ECB head Mario Draghi smothered hopes regarding more bond purchases by his institution. While there is support for the debt instruments of certain embattled EU nations on the part of the ECB, Mr. Draghi stated that such purchases are not to be regarded as "infinite." He also warned that 2012 will likely turn out to be a difficult year for the eurozone’s financial sector as well as its economy. Market messages of the not so pleasant kind keep coming our way at this instant and you would be well-advised to ponder them as we head into 2012.

Such a view is being echoed by PIMCO’s CEO Mohamed El-Erian, who said yesterday that in his opinion it is clear that the ECB does not wish to utilize the ‘big bazooka’ and that 2012 will be defined by de-levering, de-globalization, and policy inconsistencies. More importantly, and with potential implications for gold fans, the coming year, in Mr. El-Erian’s take, will therefore be a "risk-off" period at leas for the first half. We all know what the "risk-off" mentality among investors and speculators has engendered price-wise in the precious metals’ space since September…

Gold once again meandered around the $1,600 mark but strayed only about $10 on either side of it and showed a lack of conviction among participants to take a stand in either direction as their ranks palpably thinned ahead of the holiday weekend. Indian physical demand continued on the lackluster side of the ledger, as locals await lower prices as well as the calendar’s turning nearer to January 14th; a time until which is it considered inauspicious to buy the yellow metal.

Bullion’s recent cave-in has prompted more warnings and more caution to come from the managed money sector. Yesterday gold futures closed below $1,600 per ounce for the fourth consecutive trading session and the metal is still notably under its 40-week moving average. Veteran gold observer Martin Pring (Pring.com) reports that "gold has now completed a massive head-and-shoulders top," and that "for the record, the head-and-shoulders objective for the gold price calls for an eventual move to the $1,300 area."

Kitco commentator Clive Maund notes that the euro (BFF of gold in 2011) has also broken down from a head-and-shoulders pattern top and that it could be headed for the $1.20 price target., while the greenback could test index levels around the 88 to 90 value zone since it has recently negated a double-top formation. Consider what that might translate into, in gold.

Both Messrs. Maund and Charles Price (Minyanville) feel that gold’s recent breakdown is a possible clarion call for 2008-like conditions, or worse. Deflation is the biggest bogey on the radar, and you can mothball inflation and inflation fear-mongers for some time to come. Kitco News reports that gold’s chart outlook has "deteriorated significantly" and that the precious metal is poised for a re-test (a critical one) of the $1,543-$1,550 support zone by all indications. Go ahead, shoot the messenger(s).

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