By Richard Rittorno
Gold prices are flat as they hover just above the six-month low created two sessions ago and August's support level of $1,591.81. This is occurring as market participants move to the sidelines ahead of tomorrow's Federal Reserve January meeting minutes release.
Last week's move lower, along with this week's continuing downward move, is creating a technically week chart in which technical traders could be readying to move to the short side of the trade, putting the bears in the driver's seat. This week's price action will be key to watch. Traders will be watching to see if the bulls can defend the $1,600 level after Friday's intraday break of the key support level.
The break of the $1,600 level trigged a flood of protective stop orders, adding pressure to the downward momentum. If the bears muster a close below the $1,600 level, the next support level comes in at $1,550 -- a level bears defended successfully three other times in May, June, and July.
Helping the momentum of the bears the past several session is also the stronger U.S. dollar, as the U.S. dollar index continues to hang around its six-week high of 80.77. The dollar index is made up of a basket of the U.S. dollar and major currencies. We did see a tick higher in the past several sessions during the Asian sessions, which is likely explained as Asian gold dealers and jewelers taking advantage of the low prices of the shiny metal, as the tick higher was very short lived.
The next catalyst for gold is the Fed's meeting minutes, which should provide a window into the central bank's view on monetary policy. Any hint, even at the smallest level, that the Fed might pause its monetary easing will likely send the U.S. dollar higher, putting even more pressure on U.S.-dollar-priced commodities such as gold. Since gold is priced in U.S. dollars, a stronger dollar means it will take less money to buy gold and thus sending gold prices lower.
Readers can access the gold futures market via the SPDR Gold Trust Shares ETF (GLD. The GLD has a liquid options market and allows readers to define risk to both the long and short side.