December Gold:  Open= 590.0  High= 604.0   Low=589.2   Close= 602.5   +9.9

Today’s OPEC decision to cut production by 1 million barrels provided a fundamental floor for gold prices to rally from.  Failing to breach the resistance at $600 in the prior three days the market was prepared to turn in either direction based on this morning’s announcement.  As it was, support at $589 held solid and price action remained strong throughout the trading session. 

Bullish criteria for judging OPEC’s decision was that at least 1 million barrels were cut and that Saudi Arabia be fully committed to such cuts.  Not only did the Saudis agree with the cuts, but a consensus was reached that actual production was being cut, not just the quota.  This is very important as a few member nations were already  not meeting their monthly quotas for quite some time. So with a real cut in production and a Saudi affirmation, the oil bear could not breach support at $59 and Dec crude prices closed up over a dollar. 

OPEC is facing a critical test of its power as a price mover.  The market is still suspicious that the cartel cannot collectively cut its production to halt this price slide permanently.  It remains unknown which members of the cartel cut actual output and what decision is made at the next meeting.  If OPEC misplays their hand, or some members try to sell above their quotas, oil prices will be pushed down to $50.   

Odds are that this move is just the beginning of a series of adjustments by OPEC to try and reassert control over pricing.  The cartel knows that it must thread a fine needle here to keep prices somewhat high and not lose demand.  OPEC has been pumping crude at an incredible pace, perhaps too hard for quite some time, and it’s not an efficient way to run their fields.  This may, however, only be a correction before the downtrend resumes.  So many variables are unforeseen that’s its difficult to predict how low prices could go, but with the available supplies on hand the market has fundamentals to go lower in the future. For now, crude prices will face resistance at $62, $64, and $66.  Fibonacci retracement levels present a recovery zone from $67 to $72.

Not to be forgotten, the dollar was pressured early and hard today, closing down 65 points and out of the trading range seen during the past week.  Look for the market to find support near 85.60.  

What does this all mean for gold?  A sigh of relief for gold bugs.  The slide in gold and crude appears over for now, not that lower oil prices are negative, but many traders have been scratching their heads and wondering when prices would stop falling. The answer came today.  For now, bulls have regained technical control.  Gold bugs face strong resistance now as prices will test the 200 day moving average at $617. 

The FOMC meets next Tuesday and a move to keep rates unchanged will be somewhat supportive.  A rate increase appears unlikely, but expect to see some stronger language by any advocate of a rate hike.   Inflationary fears coupled with a recovery in crude could just be the momentum bulls need to push higher.

Support for gold comes in at $600,$ 597,$595 and 589.  Resistance is seen at $605, $607.5 (50 day MA), and $614.

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