Gold Sees Modest Rally On Short Covering, Bargain Hunting; FOMC On Deck

(Kitco News) - Gold prices ended the U.S. day session firmer Monday, after hitting a 10-month low overnight. Some bargain hunting in the cash market and short covering in the futures market were featured. Still, bearish technical charts and a keener “risk-on” psychology in the marketplace at present remain significantly bearish elements for safe-haven gold. February Comex gold was last up $5.50 an ounce at $1,167.70. March Comex silver was last up $0.263 at $17.225 an ounce.

Also supportive for the precious metals markets Monday were the key “outside markets” being in a bullish daily posture. Nymex crude oil futures prices were sharply higher and hit a 16-month high of $54.51 overnight. OPEC and non-OPEC oil producers on Saturday came to an agreement to cut their collective oil production by just over a half-million barrels a day, which does not include the 1.2 million barrels a day that OPEC already agreed to cut in September. Reports said the combined cuts represent about 2% of the world oil supply.

Meantime, the U.S. dollar index traded solidly lower on a corrective pullback from recent good gains. The greenback bulls still have the overall near-term technical advantage as prices are not that far below the recent 13-year high in the dollar index.

U.S. Treasuries prices were lower Monday, with the yield on the benchmark 10-year Treasury note climbing above 2.5% for the first time in two years. The sharp gains in oil prices are prompting keener notions of rising inflation, and that’s bearish for fixed-income assets. Any significant rise in consumer and producer price inflation should at some point be bullish for hard assets, including the precious metals.

The marketplace is looking ahead to this week’s U.S. Federal Reserve FOMC meeting, which begins Tuesday morning and ends Wednesday afternoon with a statement. Most believe the Fed will raise interest rates for the first time in a year. In fact, the Fed funds futures market shows a 100% chance the Fed will raise U.S. interest rates this week. As for markets’ reactions to the FOMC statement, markets have already factored into their price structures a Fed rate hike. Thus, what could develop Wednesday afternoon and in the following days is a “sell the rumor, buy the fact” scenario for the metals markets and other markets.

There was no major U.S. economic released Monday.

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Technically, February gold futures prices closed near the session high today on short covering after hitting a 10-month low early on. The gold bears have the solid overall near-term technical advantage. There are still no early clues of a market bottom. Prices are in a six-month-old downtrend on the daily bar chart. Gold bulls' next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,200.00. Bears' next near-term downside price breakout objective is pushing prices below solid technical support at $1,125.00. First resistance is seen at $1,175.00 and then at $1,182.30. First support is seen at today’s low of $1,152.50 and then at $1,150.00. Wyckoff's Market Rating: 2.0

March silver futures prices closed nearer the session high and scored a bullish “outside day” up on the daily bar chart. Short covering was featured. The silver market bears still have the firm overall near-term technical advantage as prices are in a six-month-old downtrend on the daily bar chart. However, the bulls have gained some upside momentum to begin to suggest that a market bottom is in place. Silver bulls' next upside price breakout objective is closing prices above solid technical resistance at $18.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at the November low of $16.245. First resistance is seen at last week’s high of $17.30 and then at $17.50. Next support is seen at $17.00 and then at today’s low of $16.735. Wyckoff's Market Rating: 3.0.

March N.Y. copper closed down 275 points at 262.00 cents today. Prices closed nearer the session low today and scored a bearish “outside day” down on the daily bar chart, on profit taking. The copper bulls still have the firm overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the November high of 275.30 cents. The next downside price objective for the bears is closing prices below solid technical support at 250.00 cents. First resistance is seen at today’s high of 268.50 cents and then at last week’s high of 271.30 cents. First support is seen at today’s low of 261.45 cents and then at 260.00 cents. Wyckoff's Market Rating: 7.0.

By Jim Wyckoff, contributing to Kitco News; jwyckoff@kitco.com