HardAssetsInvestor

Written by Sumit Roy  |

December 04, 2012

Gold Plummets, Must Hold Key $1675 Support Level Ahead Of Dec. 12 Fed Decision

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We offer our latest analysis on the precious metals market.

Gold prices plummeted over the past week as the yellow metal continued to erase the rally from November. Silver also fell. The technical landscape suggests that gold could fall a bit further from here to test the recent $1675 low ahead of next week’s Federal Open Market Committee policy meeting on Dec. 12.

We will outline the potential actions the Fed could take at that meeting in the next edition of Precious Metals Monitor. Suffice it to say, we anticipate the central bank will replace the expiring Operation Twist with another bond-buying program—which would be a bullish catalyst for gold.

That said, we would be wary of initiating any fresh long positions in gold until the metal can reclaim the $1700 mark. A decisive break below $1675—if it came to pass—would be considered extremely bearish from a technical perspective, and would expose potential downside all the way to $1550.

Incidentally, the ongoing “fiscal cliff” saga in the United States may be confusing gold traders. The impact on gold from the cliff is somewhat ambiguous, but in our view, a “positive” outcome in which the cliff is averted through a bipartisan compromise will be most beneficial for gold bulls.

The alternative—going over the cliff—would cause panic in financial markets, and spur across-the-board liquidation of risk assets, gold included. While considered a safe haven, gold is typically sold along with other commodities and stocks during periods of intense risk aversion.

Bottom Line: Gold is set to test the November low at $1675—a key level. A breach of that level would expose much lower prices, but we anticipate that $1675 will likely hold and that the Dec. 12 FOMC meeting will be the catalyst to send prices back up.

GOLD

SILVER

PLATINUM

PALLADIUM