The new warning sign for gold
The gold trade has become very interesting over the past few months. Both the yen and the euro have recently rallied against the dollar, as the market believes that aggressive accommodation in Europe and Japan has begun to wane.
But despite the dollar's weakness, gold has traded in a indecisive sideways pattern of late. To me, that indicates that the sentiment in gold has changed, as the U.S. recovery has gained some mild strength.
The Federal Reserve has been effective in its efforts to convince the market that accommodation will be removed slowly, and that it will be able to avoid any drastic market shocks. We have seen volatility plummet in interest rate and stock futures, and this has definitely had a negative effect on gold. Inflation also appears to be tame, but I think that this is a secondary driver of gold at this point.
So what's my trade?
If December gold futures trade up to $1,306, I will consider that a selling opportunity, with an initial downside objective of $1,290. A trade back up to $1,316 will convince me to abandon my near-term bearish bias.