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So far, gold has refused to break below the November lows, which marked the lowest point in 5 years. It surely is a sign of strength. However, this not enough for a confirmation of a final bottom, more evidence is required to that end.

Readers will remember that we wrote the following on December 1st: “Our estimate of a scenario with capitulation in miners is 50%. The reason behind our thinking is based on tax loss selling which is still taking place in December.

Unlikely To Get Capitulation

Capitulation did not occur so far. That is undoubtedly very good news for gold bulls. Does it mean that the worst is behind us, and that capitulation cannot occur? Obviously everything is possible in the markets, but such a scenario seems unlikely in the short run. The key factor is the movement of the price of gold; as long as gold is not breaking below it’s early November low, it is unlikely to get capitulation.

Going forward, we believe next week to be critical (the week commencing January 12th). Why? Becuase we are in a seasonally strong period for the metals. As evidenced by the following chart, January and February have a strong tendency to be good months for gold.

A Critical Week For Gold

The key point here is that gold should act well as it is supported by the seasonal trend. However, if strong seasonality will not lead to higher prices, then it implies explicit weakness, for sure going into the second half of January.

The most important price level to watch is $1,220 an ounce. If gold can hold that price for the largest part of next week, then we believe higher prices are to come in the short run, both for metals but more for miners.