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Why I am Bearish on Gold and not buying in this dip

Comex gold futures ended the U.S. day session sharply lower and hit a fresh 3.5-month low Tuesday. The gold market started to sell off in late-morning trading right about the time that U.S. House Speaker Boehner mentioned a "Plan B" on the fiscal cliff negotiations. Earlier in Morning trades Gold was flirting above $1700 and showing some week strength in prices although with thin volume. Exactly around 9.30 p.m IST I was circulating message regarding gold will be liquidating any time sooner when it come back to $1695, in next one hour gold was trading below $1670, the sell off rally was quite visible on chart with more conviction when eur/usd was up & usd/jpy breach 84 mark and gold was still holding in trading session.

And there a hopeful statement comes from US house speaker Boehner to settle down "fiscal cliff" with his plan B for short term. Boehner on Tuesday proposed what recently was the unthinkable for Republicans -- letting tax rates go up on income above $1 million as a short-term step to avoid some of the fiscal cliff while continuing to negotiate a broader deal. While the Republican speaker Plan "B" has less taker from both Sides White House spokesperson and republican both rejected the plan and moving towards more negotiation on fiscal cliff deal.

How it all affect Gold prices as of now, earlier gold was getting support from fiscal cliff uncertainty & what may be looking like another recession coming in US post Jan next year, but as there is a say in politics if u can't give them bread give them cakes. Both parties GOP & Tea party (republican & democrats) need to negotiate and comes to some conclusion where they both can stick to their respective politics and save the great dreams of US.

Now on technical charts gold is slightly negative which is now more confirmed by yesterday fall, rise in EURO & fall in JPY witness two major shift in market, first market is showing confidence in EURO zone & economy as a whole in next year, recently after Japanese P.M Shinzo Abe’s take charge of office, dollar got strength against JPY on account of likely monetary easing in Japan, JPY weakness also witnessed by strong inflow in equity market and rise in crude oil prices, however this all can lead to major shift of focus for investor in first half of 2013.

Investor sentiments are moving towards more safe assets like dollar, Euro & bonds. The strong U.S. economic recovery will surprises the market and especially gold investors, which flee the traditional safe haven investment. Additionally, lack of pick up in physical demand from China and India trigger a round of gold liquidation. Recent data from Hong Kong & Bombay Bullion indicate sharp decline in actual import on YOY basis.

with Gold prices likely to find support around $1633 and $1592 in short term, $1530 can't be ruled out in near term if yen continue to decline below 86. $1703 could be resistance level from here onward and could change the current trend to reverse & upside. We are expecting strong INR in coming days & below 53 by Jan'13, Since Jan'12 starting this year gold in INR has given return in double to its counter currency in dollar, this huge gap likely to widen down in 2013 with INR likely to appreciate. Therefore strongly recommend to sell Gold in MCX with closing s/l above 31820 with a target of 29150 in short term.

 

Gold also likely to adjust its ratio with other metals, specially with copper, as SEC approves JP Morgan's controversial Physical stocks backed Copper ETF, copper prices are likely to shoot up next year post JP launch its fund, whereas gold/copper ratios trading @450 levels, this could adjust to below 400 in coming times (compare to gold copper is more cheap in inflation adjusted pricing module, although one is precious metal and other is base metal but provided an investment opportunity copper is cheaper than gold at current prices).    

Disclaimer: Although this is just a report based on some facts & finding and not promoting for any trades, please take the utmost care before taking any trading decision.

With inputs from Kitco & CNN. Compiled by Amit Daga. 

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Regards

Amit Daga

"Do not take life too seriously.You Will never get out of it alive"

 Elbert Hubbard