Is Gold Losing Its Glitters ?

Starting in mid-December of last year, there was a noticeable divergence in the performance of Gold prices versus those of the S&P 500. During this time period, we saw the S&P move to new highs at the same time Gold prices turned weak. This was not the case throughout most of 2012, where both the movements of Gold and the S&P were more closely aligned. It would appear on the surface that investments in Gold were being liquidated and the proceeds being moved into equities. However, the most recent Commitment of Traders report shows large non-commercial traders adding over 14,000 new net-long positions in Gold during the past survey period, which could be a sign that the sell-off in Gold prices may be nearing an end and the Gold/S&P correlation will resume, or the equity price rally might be close to posting a near-term top.

Fundamentals

Gold futures prices have slumped to 1-month lows, with some investors starting to shift assets from the "yellow metal" and back into equities, as new highs are made in most major U.S. stock markets. In addition to an investment shift back towards "risk assets", some bullion traders note that physical trading activity has slowed lately, as most of the leading Asian markets are closed for the Lunar New Year holiday. If we focus on the longer-term prospects for Gold prices, some traders may want to keep their eyes focused on events occurring in India, the world's leading physical Gold consumer. The Indian government recently raised Gold import tariffs, with the intent on discouraging physical Gold purchases or investment in hopes that Indian investors will start to diversify away from Gold and, hopefully, spur investment into other assets. If this ploy is successful, we could see physical Gold buying begin to slow, which would take away some of the "support" for prices we have seen in the past from Indian buyers during periods of price declines.

Technical Notes

Looking at the daily continuation chart for Gold futures, we notice prices have fallen below both the 20 and 200-day moving averages, putting long and short-term bears in charge. Prices are down about $150 per ounce since recent highs were made back in October of last year, and it appears that we may have entered a consolidation phase, with prices becoming more stable between 1650.00 and 1700.00. The 14-day RSI is turning weak, with a current reading of 41.00. The "spike" low of 1626.00 made on January 4th looks to be strong support for April Gold, with resistance found at the January 17th high of 1697.80.