Thursday, December 17, 2009

Gold Enjoys a 10% Bath Following Strong US Data and Weakness In Euro-Region

On Wednesday ahead of the FOMC announcement I noted that "some gold bulls are chomping at the bit.
The 240 minute gold chart gapped almost $2 at 12:30 pm cst this afternoon. The pattern off the lows are
still reflecting bearishness, so wannabee bulls have to tread cautiously. It will take a decisive breach of 1170
to put the bulls back in a position of strength." Gold failed to even breach Friday’s stronger than expected
retail sales high at 1143.

On Wednesday, Greece sold $2.9 billion of bonds. Then, after their markets closed, S&P downgraded their
credit outlook and put them onto a "negative outlook." Neither the credit rating agency nor market
participants believed that Greece had a "credible plan to bring borrowing down from 12.7% on National
Income this year to below the eurozone limit of 3% by 2013." Finance Minister Mr Papaconstantinou
claimed that "there is a lot of will to do whatever it takes to bring down the deficit." The markets were not
convinced. The Euro plunged roughly 1.5% and plunged more than 3.5%. The upside is that both the Euro

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and Gold fell into fairly credible short term support zones. The downside is that there room for more
downside in both those markets near term.

The near term concern for gold is that they may be under pressure until they can get past the Jan 8 US jobs
report, because it is that jobs report that sent a signal to market participants that a so-called US jobs market
is healthy for the US dollar. The strong US jobs report scattered and plundered gold mkt speculators who
were taken to the woodshed that day. That Dec 4 jobs report is why gold bulls may have to exhibit patience
until nearly the next jobs report.

The upside for gold bulls is this: neither the stronger than expected Dec 4 jobs report nor the Dec 11 retail
sales report were very credible, and downward revisions might be expected in the upcoming months. But
near term, Gold rallies that fail to breach the retail sales and Greece highs at 1143 will be suspect until the
Jan 8 jobs report materializes.

Two tiers of support are noted on the intraday chart above, 1090-1097 and 1057-1067. 1090 is the high of
the day India bought 200 mt. 1057-1067 is the low of the day India bought 200 mt. 1057 is apt to be a
credible floor for gold bulls, especially with the 2008 year high at 1034 as a backstop. So, gold bulls would
do well to watch for potential buy setups below 1100 such as we had this afternoon.