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Pro: Here is Gold’s Line in the Sand

Gold
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It's all up to Ben Bernanke and his merry men.

Gold's smaller overnight range above $1,467 an ounce now has the bulls on their toes ahead of today's Federal Open Market Committee meeting, as we press below $1,450. Despite disappointing ADP employment data, which should encourage easing-related buying in the shiny metal, the $1,474.00 to $1,478.20 resistance levels have remained strong, and have kept gold in check far away from last week's swing highs.

This consolidation from between $1,437 to $1,487 is exactly the one I wrote about last week, with physical buyers and value hunters buying at these levels. Nonetheless, $1,500 will remain an enormous line in the sand.

Gold has taken out a pivotal support level below the $1,455.80 to $1,458.50 range and Friday's low of $1,447, but is hugging $1,450.This will likely remain ahead of the meeting today.

Gold's industrial counterparts began today heavy following poor Chinese manufacturing. Gold has since followed with a lack of physical buying as Asia and parts of Europe are on Labor Day holiday.

Additionally, traders are not making any big bets ahead of the FOMC meeting. A slightly dovish tone later today can potentially send gold back to test the session's highs. Some analysts expect a slowdown of bond purchasing by the Fed in the fourth quarter of 2013, from $85 billion to $50 billion. That would be a premature overcompensation for an economy that has not shown the necessary strength for that type of action given such data as from ADP and ISM this morning.

Nonetheless, if a bond purchasing slowdown is announced, we will likely see gold stretch below $1,437.50 to $1,438.00 support levels.

A European Central Bank interest rate decision tomorrow can be a bigger event than whatever the FOMC does today. Many expect the ECB to lower its benchmark rate, which would be bullish for gold priced in euros.

— Rich Ilczyszyn is founder and CEO of iiTrader. Follow him on Twitter: @RIlczyszyn

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