Retail investors and market professionals have been bullish lately. Gold prices have managed to bounce off of fresh five and-a-half year lows earlier last week. Most investors and market analysts believe that the last bounce is the start of a bigger momentum move as the U.S. dollar shows signs of topping out.
Many analysts are bullish on gold next week, as more investors cover their short-positions as there are signs that the U.S. dollar has topped out. Thursday’s euro rally of nearly 3% against the U.S. dollar was just the start of a bigger move. A weaker U.S. dollar would be positive for the gold market.
With the European Central Bank reluctance to ease monetary policy further, the euro would very much likely continue to strengthen into the December 16 FOMC meeting. As a result, this will put upward pressure on gold prices, at least in the short-run. Expectations of a Fed rate hike can’t really move any higher. All the bad news is already priced into the gold market and all the good news is priced into the U.S. dollar.
Looking at the chart, the gold market is definitely damaged but it finally has a reason to rally, especially if the U.S. dollar takes a break for the next little while.
On the skeptical side, gold prices may remain neutral in the near-term and a signal for momentum shift in market would occur above $1,100 or $1,120. One or two day rallies often lead to new shorting positions, and the latest move is all on short covering, as there is no much of new buying coming in.