Strong, stronger, strongest. That's how we can best describe the economic news that this week streamed out of the United States, official and unofficial. And, like many aspects of growth, sentiment counts.

If people feel better about the economy, they spend more. The discouraged look harder for jobs because they sense that there are jobs "out there." Companies and individuals take more risks because they perceive there are big paydays.

Except for the unexpected wild card in foreign affairs, which should not be counted out, usually prosperity means peace. (While China may be rattling its saber at Japan over the three little islands, it won't seriously commit to any action and jeopardize its $1.7 trillion trade with the westernized countries, which translates roughly to about 2.7 trillion in total economic activity for the beast of the East, or more than 1/3rd of its economy.)

Of course, this does not spell good news for gold bulls. However, it spells v-e-r-y g-o-o-d news for those willing to ride gold whichever way it may go. Where might it be going?

"U.S. growth seems to be gathering momentum," said Ole Hansen, the head of commodity strategy at Saxo Bank A/S, Copenhagen. "Gold has been suffering again lately as taper talk and a friendly risk environment have provided better investment opportunities elsewhere."

The words "better investment opportunities elsewhere" are the key to understanding what has been happening and will probably continue to happen with gold.

This is regardless of what happens vis a vis Federal Reserve tapering. But tapering "soon" is not a done deal, so we may see even more fueling of equities investment before a first cut is made in QE3.

Charles Evans, President of the Chicago Fed said as much today.

"I'll be open-minded," he said in an interview with Reuters Insider television. "Everything else [being] equal I would like to see a couple of months of good numbers, but this was improvement."

Evans was, of course, reacting to the healthy rise in job creation in November. The real power behind the numbers released today by the U.S. Labor Department lies in the diversity of sectors that saw gains: all of them. Construction has been gaining momentum and the trend continued.

"It's strong across the board," said Gus Faucher, senior economist at PNC Financial Services Group of Pittsburgh. "There is nothing in here not to like."

Unemployment has fallen to its lowest level in five years, the lowest since Barack Obama became President, and it is poised to dip below the 7% mark, a psychological threshold.

As many analysts, including ourselves, have pointed out, tapering is 85% built into the price of gold. That is not a bad thing for bulls, although they should be wary of thin ice.

We still predict tapering in March. If it does come sooner it will be small and take the form of a bell-weather reduction in monthly bond purchases to see how many old aunties in the room faint at the site of any pullback. Once it starts, tapering will ride the big Mo.

As always, wishing you good trading,

Gary S. Wagner- Executive Producer

Market Forecast:

Over this last week we have noted a continuation of the underlying bearish sentiment that has for some time existed in the precious metals markets. Specifically we have identified a key level of resistance in gold at around 1255 per ounce. Even with a new intraday low of 1211 on this last rally, we have also seen significant price activity at 1225 per ounce. If you recall about two weeks ago we took a detailed look at 1225, in terms of a historical perspective to ascertain whether or not this price point had any significance. We were able to identify a historical framework in which 1225 was a definitive resistance point. During this last week we have seen the specific price area act both as a resistance area and now a potential area of support.

This brings us to our current trade in which we are short both gold and silver, and our respective stops are listed below. Inasmuch as we considered trailing our stops tighter this week, our final decision was to leave them in place to allow for any extreme price range volatility that could be part and parcel of a thinning volume as we get closer to the holidays. We will determine our exit strategy by closely monitoring price activity in early trading next week. Of course, any changes will be communicated in terms of a special trade alert.

Proper Action

Maintain Gold Short at 1276  stop @ 1261  ...  Maintain Short silver @ 20.47 stop @ 20.50

COT LINK  See previous weeks in Historical Commitments of Traders Reports.

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