Gold Price's Next Big Test

Gold prices face a testing week as the US Federal Reserve votes again on QE taper...

 

The U.S. FED may taper its quantitative easing again on Wednesday next week, writes Sumit Roy at Hard Assets Investor.

 

This will be the next big test for gold bulls.

 

Gold prices were little changed over the past week, as the rally that began at the start of the year lost steam. The current rebound off December's low near $1180 hasn't been that powerful, which is in contrast to when prices first bottomed at $1180 last June.

 

Following that initial bottom, prices zoomed higher over the next two months, hitting $1350 in July and $1450 in August. This time around, prices reached as high as $1260.

 

Granted, it's only been about three weeks since the December bottom. But at this point, we don't necessarily see any specific positive catalysts to send prices higher. Rather, it will be gold's ability to shrug off bad news that will be most telling, and dictate whether we see continued gains in prices.

 

Gold ETF holdings rose by 0.1 million over the last week, or 0.24%, to recover a little of their late-2013 losses at 56.2 million ounces. Silver ETF holdings rose more quickly, however, up by 1.9 million (some 0.31%) to 621.7 million ounces.

The next test got gold prices will come on January 29, when Ben Bernanke and the Federal Open Market Committee make the last monetary policy decision in which he is at the head of the central bank. Bernanke is set to retire at the end of the month.

 

Currently, expectations are that the FOMC will go ahead and taper its bond-buying program by another $10 billion, bringing monthly purchases down from $75 billion to $65 billion. If that happens, we will look to see gold's reaction.

 

Following the first taper in December, gold bounced off $1180. Will the yellow metal test that level again? Or will it shrug off the news and build on the current rally?

 

In our view, if gold can break $1275 on the upside, it will indicate the rally has legs, and prices may continue higher to above $1300, even $1400. On the other hand, a move back below $1200 will put the bears in charge once again.