Gold Prices: Effects Of Fiscal Cliff, Current Risks


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Gold prices rallied Monday as the U.S. dollar weakened against the euro and investor appetite for risk increased after seeing that lawmakers made some headway in their negotiations to avoid the fiscal cliff.

Spot gold prices climbed 1.21% to $1,735.40 an ounce.SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of bullion, added 1.26% to 167.97 a share. PowerShares DB U.S. Dollar Index Bullish ( UUP ), measuring the greenback against a basket of the major currencies, dropped 0.45% to 22.14, owing to the euro's strength. UUP appears to have hit price resistance at its 200-day moving average, which is very bearish.

"Precious metals have benefited from persistent weakness in the U.S. dollar and general upside in commodities after some encouraging reports over the weekend from both President Obama and House Leader Boehner that budget talks had been constructive," Marc Ground, an analyst at Standard Bank wrote. "This has alleviated concerns that a failure to avoid the fiscal cliff could hurt the U.S. economy."

Gold triggered a sell signal when it fell below $1,714 an ounce last week, but it's holding above price support at $1,640 an ounce and its long-term uptrend that started in 2008, ScotiaBank analysts wrote in research note.

"We remain bullish so long as we don't breach $1,672 (an ounce), the November low. We are looking for an eventual retest of the $1,796 (an ounce) high.

Waverly Advisors of Corning, N.Y., this morning wrote it's considering buying gold if it breaks above prior resistance at the previous day's high, which it did right after the open. They recommend placing a stop at $1,645 to $1,690 an ounce, which translates to 164.50 to 169 a share for GLD.

"Should this trade fail, we would not be surprised to see serious weakness come into metals," Waverly Advisors wrote. "Should Gold futures decline into the low $1,600s (an ounce), we would not advocate adding to positions, but would instead look for spots to reduce existing longs."

David Nichols of the Fractal Gold Report wrote on : "Every 21 months there has been a major peak in the gold market, going back to the start of this bull market, over 13 years ago."

The next peak should come in July 2013.

"The gains in each cycle have ranged between 80% and 97%, from the low of each cycle up to the top," Nichols added. "This is surprisingly little variation, at least as far as financial markets are concerned. This is about as steady as it ever gets. If it happens again, gold will be around $2,700 in mid-2013."

Gold Miners Shine

Market Vectors Gold Miners ETF ( GDX ) jumped 2.71% to 47.74.Market Vectors Junior Gold Miners ETF ( GDXJ ) surged 3.3% to 22.22. Both are still trading below their 200-day moving averages, which is bearish.

"The miners were seriously beaten down last week, and while this index is now on short-term support on the daily chart, the weekly chart is beginning to show signs of a potential two-year topping pattern, a (bearish) head-and-shoulders top," said Janice Dorn, co-founder of

A break below the May lows at 39 a share would confirm this pattern. It's too soon to tell whether traders should short GDX or buy the inverse ETF, Dorn said.

Gold and precious metals funds took all of inflow in commodity sector funds in the second week of November, despite weaker demand from China, according to EPFR Global, which tracks fund flows.

"It was clearly concerns about asset values and developed market fiat currencies driving the flows," EPFR wrote in weekly report released Monday.

ETFs added 9.4 tons to their gold holdings last week, compared with the 5.2 tons added the previous week, Standard Bank wrote in its daily commodities report. "This brings total holdings to 2,691.3 tons -- another record high," Marc Ground, an analyst with Standard Bank wrote.

Follow Trang Ho on Twitter @TrangHoETFs

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: GDX , GDXJ , GLD , UUP

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