December Comex Gold futures are trading higher shortly before the New York opening. The market is picking up a bid due to the weaker U.S. Dollar. Stronger equity markets may be keeping a lid on the upside price action, however.
The market has consolidated nicely the past two weeks despite the stronger U.S. Dollar. This suggests a December rate hike has already been absorbed into the market. The price action also indicates that gold is following the movement in U.S. Treasury yields more closely than the direction of the U.S. Dollar. So if Treasurys weaken today, gold could spike to the upside. A break in the dollar along with weaker Treasury yields could be the right combination for a major breakout by gold.
The main trend is down according to the daily swing chart. A trade through $1275.90 will turn the main trend to up. This would make yesterday’s low at $1260.10 a new swing bottom.
A new swing bottom at $1260.10 will also be secondary higher bottom which will be a strong sign that real buyers are coming into the market and not just traders covering their short positions.
The short-term range is $1275.90 to $1260.10. Overcoming its pivot or 50% level at $1268.80 will indicate the buying is getting stronger. The next target is the main Fibonacci level at $1274.80. Taking out this level with conviction could trigger an even further rally into the major 50% level at $1295.70.
Based on the current price at $1270.20 (0937 GMT) and the early price action, the direction of the market today is likely to be determined by trader reaction to the short-term pivot at $1268.80.
A sustained move over $1268.80 will indicate the presence of buyers. This could create enough upside momentum to challenge the main Fib at $1274.80, followed closely by the main top at $1275.90.
Taking out $1275.90 will not only turn the main trend to up, but it could trigger an acceleration to the upside with $1295.70 the next major target, followed closely by $1301.80 and $1307.80.
A sustained move under $1268.80 will signal the presence of sellers. The next major downside target is a cluster of numbers at $1259.60, $1259.10 and $1259.00.
If buyers no longer support a break into this zone then look for the selling to extend into $1249.20, followed by $1243.20.
Watch the price action and read the order flow at $1268.80. Trader reaction to this level will tell us if the buyers or sellers are in control. If the buying is strong enough to take out $1275.90 then look for a huge breakout to the upside.
Any rally would be helped by a weaker dollar, falling Treasury yields and a stock market sell-off.