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Taper talk takes the shine off gold

Spot gold potential trade: sell rallies to 1308 with a stop at 1322 and a potential target of 1378.

Friday’s jobs numbers in the US were a pivotal development for gold in the near term. While the precious metal had started showing signs of a reversal higher following the Fed’s decision not to taper in September, this argument is now firmly out of the window. The non-farm payrolls reading showed the US economy added 204,000 jobs and set the tone for a US dollar rally with the dollar index printing a high of around 81.40.

The argument for December tapering is certainly gaining momentum now, with just one more jobs reading to go before year-end. While there are no blockbuster releases from the US this week, Ben Bernanke’s speech on Thursday morning will carry significant weight.

Any further hints on tapering will be USD supportive and in turn this will weigh on gold further. I feel traders could look to sell gold is to sell rallies into the 1300 region. This is just below a downtrend resistance line which has been in place since March and is also around the 50-day moving average. A potential sell level is 1308, which is the 50% retracement of the recovery from 1182 lows to 1434 highs, which took place between July and September. Stops will have to be placed above 1322, which is the 50-day moving average median. From a target perspective I’ll be eyeing 1278, which is the 61.8% retracement of that move ahead of 1352, which was the mid-October low.

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