Gold price: No-taper rally evaporates as shorts are covered

The gold price on Tuesday continued to drift lower with the metal's no-taper rally last week all but evaporated.

In afternoon trade gold was changing hands for $1,323, up from the day's low of $1,306 but returning to the level it was trading at ahead of the surprise announcement by the US Federal Reserve that it's continuing its economic stimulus program unchanged.

Gold's $60 post-Fed spike  did not last long and on Friday the price fell back more than $40 after St. Louis Fed President James Bullard reminded investors the bank's $85 billion per month asset purchase program may still be throttled back next month.

In a new research note, Canada's TD Securities explains why gold's no-taper rally proved so short-lived:

"Given that tapering is still a high probability outcome and the fact that price action went from rally to correction so quickly, it tells us that there were not many new longs entering the market and that the rally was of the short-covering kind.

"One thing is obvious from recent market action: the Fed’s next move will have a very large impact on gold, silver and indeed the entire commodity market as we move into 2014. And, this will depend on economic data—poor numbers being positive for precious metals and strong numbers negative."