Gold prices are trading higher this morning and are currently around a five week high. The gold market is gaining some traction on recent equity market volatility as well as uncertainty surrounding Ebola and geopolitical risks. While the gold bulls still have their work cut out for them, the market is gathering some steam. Gold is currently trading around its swing lows reached in June, and a move above this point on the charts would be technically constructive.
This week will be a light one from a data perspective. Tomorrow, investors will get the latest reading on Existing Home Sales. Wednesday will bring the release of the Consumer Price Index, or CPI. On Thursday, investors will see the latest data on Weekly Jobless Claims as well as PMI Manufacturing Index Flash data and Leading Indicators. Friday will cap off the week with the latest data on New Home Sales.
Gold prices will likely continue to take their cues from outside markets. Many are wondering if the stock market has now found a bottom, and if the spike in volatility is behind us. Gold may benefit from further volatility and downside in stocks, and precious metals investors will be watching stocks closely for further signs of weakness. In other outside markets, crude oil remains on the defensive while the dollar remains near recent multi-year highs. Both of these factors tend to work against gold, as a stronger dollar makes gold relatively more expensive and weaker crude may lessen worries over inflation.
Speaking of inflation, last week’s PPI data showed inflation essentially disappearing. One has to wonder what Wednesday’s CPI data will look like. Consensus estimates are looking for no change M/M. The data may in fact give the Fed room with regards to monetary policy. It would seem that low interest rates have thus far not been able to spur on inflation and that the Fed may have to keep rates at current levels longer than expected. St. Louis Federal Reserve Bank President James Bullard alluded to this point last week when he discussed the idea of the Fed having to back off on its plans to continue to wind down QE. Whether or not the Fed is forced to back track remains to be seen, but the notion of rates staying low and the Fed leaving its foot on the gas could give the gold bulls more reason to buy.
Gold will likely force more shorts out and we may see further bargain hunters stepping in to buy. It is possible that the current rally in gold is just beginning, and that short covering and safe-haven buying could drive the metal significantly higher in the near-term.
