February Gold:  Open= 641.0  High= 644.3   Low= 635.5   Close= 635.9   Change: -12.0

It’s nearing Christmas time, the snow is falling, and so are commodity prices.   The bulls had a wonderful Thanksgiving and now its time to let the bears have a few days of glory.  The main focus of the recent weakness in the commodity markets over the past few days is profit taking and fund liquidation ahead of the New Year.  Gold and silver made great gains in the past two months and we’ll likely see a period of consolidation before moving higher. 

Little has changed on the ‘facts’ side of the story, meaning, prices have just run to high too fast for the time being, but the reasons traders were buying gold has not changed.  If anything, worries about the slide in the dollar is attracting more attention.  There is growing concern by the Treasury that the slide in the dollar may worsen, as Secretary Paulsen went on the defensive recently with ‘strong dollar’ statements in the press. 

As the dollar moves lower it gives foreigners greater purchasing power.  This leaves those involved in the commodity sector in positive light, as a 5% drop in the dollar equals 5% more cash to buy goods denominated in dollars.  In the short term ahead, we may rightly see a bounce in the dollar and that is enough justification for bulls to take profits and be ready to buy on weakness.  Once this liquidation runs its course, look for gold prices to firm.  Trade may be choppy in the interim but look for a resumption in the rally to continue once the bounce in the dollar plays out.

A close above $655 is the next upside objective, though the longer term objectives lay between $670 and $700.  Support comes in at 636, 630, and 625.  Resistance is seen at 640, 644, and 645.

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