TRADEVIEW : The Gold market has been held hostage by Congress

The Gold market has been held hostage by Congress, as the inability of some legislators to come to an amicable agreement on a budget has wreaked havoc on prices. If partisan bickering continues instead of compromise, economic growth could be harmed. With news that Chinese growth could be improving, the market should be upbeat, but the black cloud of the Fiscal Cliff talks could be what garners attention. Technically, Gold is at a fairly significant point. Prices are trading below a major, long-term moving average, which could put technical pressure on the market in addition to the fundamental concerns. The market is nearing oversold levels, which may soften the downside for Gold.

Fundamentals

Many Gold traders have been discouraged by the Fiscal Cliff talks, which have pushed prices lower in recent sessions. Given how far apart the two sides appear to be, the likelihood of reaching an accord is likely not very good. This could lead to a government shutdown. Given how much the public sector has grown in recent years and the trickle-down effect to states, a shutdown could have a significant impact on economic growth, lessening Gold’s appeal as an inflation hedge. On the positive side, Chinese growth seems to have at least held steady around 7.5%. There have also been rumors that the recent sell-off has spurred buyers of Gold in India, who likely believe this may be a temporary dip in prices.

Technical Notes

Turning to the chart, we see the February Gold contract now trading below the 100-day moving average for the third consecutive session. This can be construed as a negative signal for the Gold market. Prices are also nearing the spike low from early November, which can be seen as a minor support level. Further support can be found in the 1635-1650 area. Yesterday’s spinning-top candlestick hints at a possible reversal, but prices did not cooperate in overnight trading. If Gold is able to right the ship and close higher, it would offer confirmation of a possible near-term reversal. Otherwise, the momentum may rest with the bears.

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