Gold Prices Under Continued Pressure In Year End Trading
Gold prices have been under renewed downside pressure during late 2012 trading, with the dovish US Federal Reserve stance not proving to be enough to stop negative sentiment prevailing for now. Concerns around the global economy continue to weigh on gold as the outlook for global growth deteriorates and investors mull over the bearish IMF (International Monetary Fund) growth forecasts.
In a similar move to other central banks whose rates are near zero, the BOJ (Bank of Japan) has also now expanded its asset purchase program and announced it intended on reviewing its 1% target for inflation next month. Central bank easing is widely viewed as a positive influence on gold prices as a potential "store of value".
The near term focus has been based upon events surrounding the so called "fiscal cliff", the tax increases and cuts in spending, which could be triggered if US Congress fails to find a resolution in this area. Market participants continue to keep an eye on events in Washington D.C. and the White House has advised that President Obama will be cutting his Christmas holiday short to resume ongoing negotiations. Events around the fiscal cliff could see an increase in volatility for gold as politicians continue negotiations.
A potentially supportive element for the price of gold is that central banks around the world have expanded reserves in the precious metal, as it looks set for a 12th annual basis gain. Investors currently hold a record level of gold backed ETP's (exchange-traded products). 373.9 tons of bullion were purchased during the first nine-months of 2012 with end-of-year additions potentially bringing the total to around 450 to 500 tons (World Gold Council estimates).
From a gold technical analysis perspective, gold has seen some initial near term support around the $1,650 handle with an element of potential technical resistance seen around the $1,660 and $1,672 areas. The 200-day moving average is another key area monitored by many technical traders and this is at present located around $1,660 on gold spot. Thin trading conditions could see spikes in price though as many participants are away from the market at this time of the year.
As well as the aforementioned fiscal cliff developments; near term event risk includes the US Unemployment Claims data which is released tomorrow. This is seen as an important measure of the health and direction of the economy.