December Gold: Open= 589.0 High= 589.5 Low=582.5 Close= 582.9 Change: -13.5
On Friday, gold prices slid back below $600 and that slide continued over the weekend, providing a large opening gap this morning. Crude oil prices provided all the necessary weakness to pull out support from under gold. Only two trading sessions after OPEC announced it would cut actual oil production by 1.2 million barrels, prices plunged under a price floor at $59 a barrel.
Initial knee jerk reaction followed Thursday’s announcement with crude prices rallying on the belief that supply would be withheld from the market. Crude bulls failed to support Friday and the market will now test OPEC’s ability to be a market mover. Doubts still remain over the actual effect of this cut and traders may take a “show me” attitude towards these cuts. If this production cut actually plays out, then perhaps only then will OPEC regain some credibility. The market suspects a few members of the cartel will likely cheat on their quota and OPEC itself stated that global demand is set to soften. Thus, a cut in production into softening demand is hardly a strong stance after all. OPEC meets again in December, perhaps facing $50 crude oil?
The FOMC meets tomorrow morning. At this time, rate increases appears unlikely but expect some stronger language by advocates of a rate hike. Will others join Lacker? Falling crude prices might give the Fed some flexibility for an aggressive move to stamp out lingering inflationary fears.
Gold appears caught between many rocks at this time. Falling energy prices do not support. Possible hawkish Fed comments do support. The current strong dollar does not support. The possible Democratic take over of Congress will be bearish the dollar, supportive of gold? There was a glimmer of hope last week for gold bulls but it proved fleeting.
Today’s opening gap took prices back below the 25 day moving average. Support comes in at $580, $577, $572.3. Major support comes in at $570 and $566. Resistance is seen at $589.7, $596.5, and $602. Open interest continues to fall.
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