By: FX Empire
After an early-session steep decline, Comex gold futures are now trading significantly higher. The early session sell-off was in response to trader reactions to the failure of the Swiss referendum to increase Swiss National Bank gold reserves; although the vote to not increase the reserves from 7% to 20% was anticipated, the market still dove nearly 2% as a result.
"We didn't think that vote was going to pass. Nobody thought that, but they've cleared the air," explained George Gero of RBC. He continued on to say that what brought gold back was the fact that there are three continents that have to stimulate their economies. The market was being pulled by buyers who are bargain hunters wanting to take advantage of the plunge in the price of gold, and then it was pushed back again by the dollar, as well as by deflation.
Comex gold futures for February hit $1,221 per ounce and then settled with a gain of 3.6% to $1,281. This has been the biggest swing since April of 2013.
In November, Gold futures dipped low enough to attract new buying attention, and levels recovered to $1141.70 after bottoming out at $1132.00. On December 1, gold rose to its best level since October, above the key $1,200 level. This rebound has put the market in a good position to form a higher bottom and closing price reversal bottom, in part due to last week's decision by OPEC to not cut its production – a decision that seems to have already been absorbed by the market.
In a surprise move last week, India repealed a law that had required traders to export 20% of the gold imported into the country. Although the Indian government didn't wipe the tariffs away, it does have an effect on gold prices because the country is the first or second-largest consumer, said Jim Steel, chief commodities analyst at HSBC. So, even though this move by the Indian government is an important factor for gold futures, it isn't enough to ignite a massive rally.
Although the price drop after the Swiss vote to not increase its reserves, the Euro is going to have to gain strength for the current rally to go much further. On the other hand, the hedge and commodity funds are extremely short and may book some profits, which could start a strong, albeit short, rally. Should that rally continue, many experts expect the next target for the market to reach $1,225.00 per ounce.