Since the gold market’s failure to break through the $1800 per ounce level, the yellow metal has remained under pressure.

Recent economic data in the U.S. has been mostly positive highlighted by the sudden turnaround in job creation. Data like last week’s positive reading on consumer confidence along with Monday’s better than expected reading on retail sales has re-ignited a debate on the future prospects of QE3, which is possibly seen as bearish for precious metals if the Fed discontinues it.

HOUSING STARTS
Just this morning, a surprise reading on housing starts showed its best reading since September 2008, besting estimates for over 100,000. In my opinion though, The Fed will need to see a series or a few months’ worth of data before they would pull the plug on asset backed purchases, so the long term outlook in my view hasn’t changed.

BEARS CONTROL MARKET
In the very short term however, the bears remain in control. The gold market from mid-August to October 5 rallied from $1620 to just under $1800 an ounce. Looking at some Fibonacci retracement levels, a 38 percent retracement takes us to the $1730.0 level which was hit Monday morning, with Monday’s low at $1729.7. A fifty percent retracement is down at $1709.0, and a 62 percent retracement is down at $1688.0. These are the levels I am watching to the downside. It is important to note that the 200 day moving average is at $1665.6. Weekly resistance is up at 1776.9 and with a close over 1794.2.

IT’S A CORRECTION
After a five percent rally for gold in September, the metal has come off its highest levels. It is important to note that markets do not move straight up or down forever. Rather they make moves and later fill gaps.

OPPORTUNITY KNOCKS
This is where opportunity lies for the investor, first to determine where markets may retrace to, and if those levels hold to take advantage of possible future movement. Next week the Fed will hold another two-day meeting which could possibly be met with profit taking. If I see gold retrace back to the $1710 area, which represents a fifty percent retracement, I may be inclined to look at long positions in the market.

BULL CALL SPREAD
I am looking to buy the 1775-1800 bull call spread for 5.5 points or $550.00 risk. This is a long-term position trade in gold, where the cost of the trade is the risk, because we are buying premium on a spread basis, along with commissions and fees, is the max loss on the trade. Maximum profit is $2,500, minus price paid for the spread plus commissions and fees. To me, nothing has changed long term with rates sitting at lows and going nowhere along with central banks around the world printing more money.

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[Editor’s note: What do you think? What will it take for the Fed to end QE3? Will we see an end to QE3 in 2013?]