The December FOMC meeting when Ben Bernanke shied away from QE3 has put pressure on the shiny metal’s role as an inflation hedge, while seasonal profit-taking kicks in hard.
Gold is approaching its third consecutive year of double-digit gains.
The U.S. dollar’s strength against the backdrop of the European debit crisis may increase downward pressure if the safe haven move pushes the U.S. dollar even higher.
Looking at gold from a technical point of view, gold prices are drifting lower after forming a bearish Shooting Star candlestick below the support level of the bottom of the downward channel formed in early November.
The bears appear to be looking to challenge the long-term support trend line that started back in late October 2008, which is now at $1,567 and the channel resistance is now at $1,611.
Traders looking to gain exposure to the spot price gold can consider the SPDR Gold Shares(GLD, quote) ETF which seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets.
Silver spot prices are locked in a narrow range between $28.41 and $29.79. The fundamental catalysts driving price is taking its cue from gold.
Continued decreased demand for an inflation hedges is likely to increase in the coming months. In the near term, the return of euro zone risk fears and the strength of the U.S. dollar will also weigh in on price.
A break higher exposes rising trend line and is currently sitting at $32.07 and a continue push downward will bring a downside target of $26.05 for the bears.
Traders looking to gain exposure to the spot prices of silver can consider the iShares Silver Trust (SLV, quote) ETF, which seeks to reflect the price of silver owned by the trust less the trust’s expenses and liabilities.
The fund is intended to constitute a simple and cost-effective means of making an investment similar to an investment in silver.