Friday September 06, 2013 13:57
Gold bulls have felt some jitters in recent days. But, over and over again in recent weeks, short-term dips have turned into buy spots.
There are a bevy of fundamental factors on the near term horizon, which could prove gold supportive in the days ahead. The first is the U.S. Federal Reserve and whether will it taper — or not— at its Sept. 17-18 Federal Open Market Committee meeting. Recent data does not necessarily reveal the type of strong economic recovery the Fed has hinted it would like to see.
Yet, the persistent and loud "broadcasting" of the Fed's tapering intentions may leave the central bank in a position where it needs to at least initiate a small type of "token" tapering to maintain its credibility at the September meeting. Maybe a cutback by $10 billion per month in U.S. Treasuries and another $10 billion in mortgage backed securities. Get ready for tapering. It's coming soon whether or not the data actually warrants it. But, that's not the real gold story short term.
Beyond the Fed's actions, a renewed focus will shine on U.S. policymakers when Congress returns from recess next week. The debt ceiling debate will once again steal center stage as the U.S. government faces a potential shutdown.
Brace yourself. House Speaker John Boehner is gearing up for a political battle over raising the nation's $16.7 trillion debt ceiling limit this fall. Meanwhile, President Obama has repeatedly been quoted as saying he will not negotiate on the debt ceiling.
The current "continuing resolution" which is basically a band-aid patched over a budget hole will expire on Sept. 30. Through some extraordinary juggling, however, experts see the U.S. government being able to operate into early November before a crisis will actually hit. Leadership in both political parties both know the costs of actual government default are too high to truly bear, but that won't stop them from pushing the U.S. to the brink amid showmanship and the inability to compromise.
Gold traders will remember that the last major political skirmish over the U.S. debt ceiling in the summer of 2011 was one of the factors propelling the yellow metal to its all-time highs at over $1,900 per ounce. That was the summer that Standard & Poor's stripped the U.S. government of its AAA ranking. Recently, Fitch Ratings has warned it is taking into account the debt ceiling politicking in its review of its current U.S. rating.
Does this mean a retest of the gold market's high in the cards this fall? Probably not. But, the $1,490/$1,500 target is a bullish objective and could be within reach on a multi-week basis. On the chart, key technical support remains in the $1,350/$1351 zone. That level needs to hold to keep the overall near term bullish bias intact.