After reaching a new high at $1817.60, December Gold futures broke, setting up the possibility of a daily closing price reversal top. Typically when margins are hiked, the market tends to sell-off. The CME Group‘s hike of 22.2 percent could have this affect on gold futures.
The question is whether the margin hike will have any influence on gold prices especially since the market has proved to be an attractive alternative investment to falling stock prices and dramatic drops in other commodity markets.
Gold has become the safe-haven of choice as investors continue to flee risky assets because of debt contagion fears, theU.S.credit rating downgrade and a general slowing of the global economy.
Central bank activity is one of the driving forces behind the gold market rally. Both the European Central Bank and the U.S. Federal Reserve have contributed greatly to the precious metal‘s rapid rise. The uncertainty behind the stance of the ECB regarding sovereign debt issues inItalyandSpainhas caused investors to seek shelter in gold. The announcement this week by the Fed to keep interest rates at near zero until mid-2013 is another reason why investors are chasing gold.
With the central banks of Switzerland and Japan threatening intervention to weaken their currencies, the gold market remains the last line of defense against the worldwide printing of currencies as governments throw money at their economies to prevent banking crises and to stimulate their economies.
Technically, a closing price reversal will be a sign of a top or not necessarily a change in trend. Typically, this type of top leads to a 2 to 3 day correction equal to 50 percent to 61.8 percent of the last leg up. If we measure the last leg up on the daily chart as $1583.00 to $1817.60, then we could be looking at a possible correction to $1700.60 – 1672.99 over the near-term. In addition, uptrending Gann angle support will come in at $1705 today and move up $8.00 per day.
With the market overbought and the CME raising margins, gold futures remain vulnerable to a possible downside correction. Watch for the reversal top formation to set up the next move.
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