December gold futures have been trading in a choppy and sideways trading range at lower price levels for the past month. This trading range is defined by solid technical resistance at the $780.00 area and by strong technical support at the October low of $681.00. The direction in which gold prices break out of this trading range is likely to be the direction of the next significant price trend in the market.
It’s important to note that recent price action in the precious yellow metal has seen a disconnection from the previously strong inverse trading relationship with the value of the U.S. dollar versus the other major currencies. During most of 2008, on trading days when the greenback was stronger, gold was weaker. And when the dollar was under pressure, gold prices were generally higher.
Click on the chart to enlarge
Gold market bulls have also been disappointed in recent week’s by the metal’s inability to produce a sustained price uptrend in the wake of the biggest financial market debacle since the Great Depression of the 1930s. Indeed, gold no longer holds its keen safe-haven status that it enjoyed in previous decades. On a near-term technical basis, December gold finds technical support located at Thursday’s low of $732.60 and then at $725.00. Resistance is located at Thursday’s high of $750.80 and then at this week’s high of $764.80.–Stay tuned!–Jim Wyckoff