Gold hurt as downside momentum accelerates

In the Lead: “Momentous Momentum Moment”

Gold and silver started the new trading week on a weak footing, picking up where they left off on Friday, with the former touching fresh two-week lows in the cash market at the $1,651 per ounce level. Some of the selling was related to options expiry while parts of it were caused by the reporting of a solid durable goods orders figure for the month of December. Metric after U.S. economic metric continues to come in at, or above consensus expectations and such data strings have fueled anxieties among speculators in certain assets (gold certainly one of them) to reassess their “QE to Infinity” positions.

One of the fears that caused gold to sell off again yesterday is in fact related to the fact that — in light of the improving economy — the Fed might not have much if anything (of a dovish thing) to say to the markets after it meets today. To top it all off, the perception that the much-feared debt “bomb” and attendant U.S. credit rating downgrade have been (at the very least temporarily) defused, is adding to the woes of the doomsayers out there. Such apprehensions have chipped away at gold’s safe-haven premium rally since last fall; it’s just that the perma-bulls have not acknowledged it; then, or now.

One ought not to count on the euro to “save the day” for gold, either. The former BFFs have at least partially parted ways recently, and may further diverge in coming months. Never mind that the recent rally in the euro is suspect and subject to a retracement.  Deutsche Bank believes that the common currency’s rise will shortly begin to damage Europe’s exporters and put pressure on the ECB to try to depress the euro’s value. BofA, on the other hand, sees the euro’s approach to near key resistance chart levels ($1.34 to $1.36) as a not-to-be-ignored sell signal in the making: “When you get up to those levels, based on the head-and-shoulders pattern developing in euro-sterling and euro-dollar, it usually says that we need to start looking for signs of a top, then a turn to the downside.”

Gold managed to narrow its early morning losses somewhat as a December drop in pending home sales temporarily overshadowed the robust durable goods report. Silver fell along with the yellow precious metal on Monday, touching lows near $30.65 per ounce. The white metal has lost 5% in just 3.5 trading sessions (once again, repeat after us: Silver is gold on steroids). If silver were to breach support near the Jan. 11 low of $30.11, then the focus could rapidly shift towards the mid-$20s as a potential target. In the interim, there appears to be no shortage of ridiculous, ill-conceived takes on what is happening in the silver market. Caveat lector.

Late Monday-issued EW wave analysis noted that gold closed lower for the fourth straight session on Monday and that daily momentum was pointed “firmly lower” but that hourly momentum was diverging a bit. Thus, a short-term bounce to resistance levels near $1,669-$1,679 cannot be ruled out. The present target for the unfolding move in gold is not $1,625, but, rather it is the round figure at $1,600 per ounce. It would take a convincing break above $1,696 per ounce on the upside in order to alter that ‘bearish’ view.

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