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Why Gold Will Continue to Underperform

Monday, 8 Apr 2013 | 12:31 PM ET
AP

Predictably, gold rallied on Friday following news that U.S. employers hired at the slowest pace since March, adding just 88,000 jobs, while the unemployment rate notched lower to 7.6 percent. But the precious metal wasn't able to hold onto its gains, which is striking because I don't believe there is any doubt the U.S. Federal Reserve will continue quantitative easing through the summer.

(Read More: Gold Slides After 2% Rise)

So why is this bad for gold? Because once again central banks around the world are beating us at the liquidity game. On the same day the jobs number was released, the Bank of Japan announced it would double its current round of asset purchases and then the Bank of England said all options are on the table as far as dealing with their economic woes.

Then, the Bank of Japan conducted its first bond-buying operations on Monday, saying it would buy 1 trillion yen of government bonds with maturities between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years. The central bank plans to inject about $1.4 trillion into the economy in less than two years.

(Read More: Yen Dives as BOJ Jump-Starts Stimulus Plan)

As i have stated before: as long as the U.S. dollar appears to be strong and the government — and I stress government — reports little to no inflation, gold will continue to underperform.

Sure, the mysterious metal will have its bounces. Gold's allure can generate interest, but every time it does, i will look for a place to sell. If the dollar starts losing some of the strength it's had against the yen, euro, pound and Aussie dollar, then I will rethink this trade. But until then, it's sell the rallies in gold.

From a technical standpoint, the first resistance I see is $1,588 followed by $1,600.

Read on for 10 Things You Need to Know to Trade Futures

— Reuters contributed to this report

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