Slouching Toward Tapering

As we have maintained recently there is going to be a lot of volatility in the precious metals markets through the holidays.

The volatility will continue to be related to small volumes, interrupted trading weeks, and fewer players in the game, as well as fewer analysts hard at their grindstones.

Of course, until the FOMC actually delivers their message come next Wednesday, there will also be uncertainty revolving around tapering of QE3. We can't reiterate enough the thought that once tapering does begin - whenever that might be - it will be a graduated pullback, not an enormous cut.

The consensus among sober-minded people is that the first step back will take tapering to about $70 billion per month in asset purchases. We come down firmly in that camp.

The next step down might be another $20 billion, taking purchases to $50 billion per month. Neither the $70 nor the $50 billion figure is one to sneeze at. If some sort of action is taken in March and then again in, say June, the following 12 months would see not quite three quarters of a trillion in additional asset purchases. Consider that for a moment.

However, we often discuss such matters in perhaps too rational a way. The tics and flinches of the marketplace are never terribly rational and would probably make for a terrific doctoral thesis on fear, greed and the herd mentality.

While we should never take our eye off fundamental market influences, they cannot drive our trade strategies unless there is an event of overwhelming impact. Our technical analysis that utilizes a number of methods you are now familiar with is, for lack of a better word, our bible. 

Technical analysis reflects market forces beyond the narrower confines of the precious markets. Money is always moving in and out of many investments and technicals best can do the calculus behind the total picture.

In today's market, money came back into the precious metals because it was quite simply oversold. While the price action last week can be seen as part of a longer term trend, the action this week has to be considered primarily in the context of volatility. That seems to have shaken out of the market and now there will be a short but anxious waiting period until Wednesday.

As always, wishing you good trading,

Gary S. Wagner- 
Executive Producer

chart.jpgMarket Forecast: Considering that gold prices have ended the week just a little bit above where they began is quite interesting when you consider the extreme range (weekly highs and lows) that was seen in trading over the five day period.

Of course the big news is that traders and investors at large are awaiting next week's final FOMC meeting of the year. Also noteworthy is today's CFTC commitment of traders report. This report details that managed money has, to a great extent, liquidated short positions. A total of 5203 short sale contracts were unwound and managed money added 659 long by contracts to their inventory. The full report can be seen from link below

The real question on a technical basis is whether or not gold can hold its current support level which we have earmarked at 1225. We still defined resistance in gold at 1255 to 1261. I would not be surprised to see gold trade within that defined range at the beginning of the week as traders prepare for the upcoming FOMC meeting. Lastly the fact that the House has passed a budget that will now go to the Senate for approval largely removes the dark cloud that in unresolved debt ceiling creates. All in all next week should prove to be a most interesting week in the precious metals markets.