Gold Bottoms $1200 Before New Year's Holiday

Gold prices took a breather early Tuesday from yesterday's 1% slump, but the precious metal is poised to mark its worst annual performance in more than 30 years.

The bullion market has most probably suffered its biggest annual loss since the 1980's, capping the year in a very fragile position below the technical support of $1,200 as of this writing. Meanwhile, trading volumes continue to ebb down ahead of the New Year`s holiday thus some of the moves may have been exaggerated while investors continue to fear what the New Year will bring.

Spot gold was slightly up 0.08% at $1,199.55 an ounce at 08:48 GMT, compared with yesterday's close at $1,996.57. The day`s rangebound is so far between $1,194.84 and $1,201.88.

Investors have lost faith in the metal as a safe haven or store of value as equities set to end the year at a high note, as economic recovery pushed the Federal Reserve to wind down its $85 billion in monthly bond purchases starting January.

The Fed's decision to begin tapering its bullion-friendly stimulus program gave the advantage for the dollar to steal the precious metal`s shine by the end of the year, since gold is dollar-denominated, foreign demand is expected to drop, and inflation is likely to remain low as well.

Speaking of physical demand, gold holdings in exchange-traded products dropped 33% this year, signaling Chinese appetite for bullion is expected to be easing or so. But still, demand from the world`s top gold consumer, India, could see uptick into 2014.

In India, a government crackdown on gold imports has hammered demand, but we might see a rebound in gold prices of we see some relief of these restrictions in the coming days.

Technically, gold is unlikely to extend the long-term bearish move unless we see a break below major low at $1,800, but as long as price remains the $1,218-1,220 resistance level, the bearish bias shall remain favored.