Today's Spotlight Market

Gold futures remain within earshot of the key psychological and technical level of 1800, but have failed to break through. Fundamentally, a stronger US Dollar and economic concerns have prevented prices from garnering enough momentum to finally break through the key level. Equity prices also have hit a brick wall, offering no outside market support. This is earnings season, which suggests that stock prices could be volatile in the weeks ahead. Technically, the 1800 mark is a barrier the market must pass through in order to keep upward momentum going. Otherwise, prices could fall back sharply.

Fundamentals

Gold futures have failed to make new contract highs, largely due to economic uncertainty and a firmer US Dollar. The rally in gasoline prices, while inflationary in the near-term, could be seen as a growth-killer for the state of California, the largest US state. The state has suffered the brunt of the collapse in home prices, and the state government is not exactly the model of solvency. This has left the economy there in an extremely fragile state, making the spike in prices at the pump all the more painful for consumers. In Europe, Spain has avoided having to be bailed out, somewhat lessening the appeal for Gold as a defensive play. While Spain has avoided the worst-case situation, some nervous bond traders have quietly been accumulating US Treasuries and lessening European debt exposure. This has stabilized the greenback.

Technical Notes

Turning to the chart, we see the December Gold contract trading near the 1800 level for the third time this year. Prices, however, have failed to break through the level each time. Failure to do so this time around could have a substantial negative impact on traders' psyche. In addition to trading up to 1800 and failing to break through, the negative divergence between prices and the RSI indicator can be seen as bearish. The indicator has drifted lower since mid-September.


Rob Kurzatkowski, Senior Commodity Analyst

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