Gold prices are continuing to gather some positive momentum as the yellow metal hits a one month high. Gold has made an impressive bounce following a dip down to the $1183 area-and it would appear that more upside could be in the cards in the near future. The question likely on everyone’s minds is whether or not this rally is actually sustainable or is it simply a short covering bounce that will be sold into. For the time being, it would seem that any good rallies in gold will be sold unless the bulls are able to prove otherwise.
It should be noted, however, that the last time gold tested the $1183 area on the downside, the market proceeded to rally sharply and traded all the way up to nearly the $1400 level. Given the amount of bearish sentiment surrounding gold and precious metals recently, a high octane short squeeze is certainly a possibility, although whether or not we see another run towards the $1400 level is anyone’s guess.
The Fed may have done gold some favors last week during the release of the latest FOMC meeting minutes. The Fed expressed concerns over the potential of a global slowdown, and also expressed concerns over the rising dollar index. The Fed also made it clear that short-term interest rates will remain low for the time being. All in all, the Fed appeared to sound a lot more dovish in its remarks, and this could potentially be a positive for the gold and precious metals markets. In addition, the Fed’s remarks could potentially weigh on the dollar index.
Today is the Columbus Day Holiday, and while futures and stocks are open, the bond market is closed in addition to the U.S. Government. After dipping down to around the 1880 level overnight, SP 500 futures are back above the 1900 level currently trading sharply higher on the session. The SP500 and other stock indices will continue to be closely watched by precious metals investors. The equity markets have shown increasing volatility and perhaps what may prove to be topping action in recent weeks. Lower stocks could potentially hold the key to higher gold. While lower stocks may possibly benefit gold, lower crude oil prices may drag gold down. Oil continues to slide, and the weakness in the energy sector is adding to stock’s troubles.
The gold bulls have a great deal of work to do to negate recent technical damage, but current price action could potentially suggest a near-term bottom has been reached. Gold will likely take its cues from stocks, the dollar index and overall investor sentiment.
