Gold is moving slightly lower today to begin the new trading week. Stocks are moving sharply higher today, while crude oil prices and the dollar index are also gaining ground.
The gold bulls are trying to build on solid gains seen in Friday’s session. If the bulls can hold these recent gains, the market may potentially be poised to move higher still and test the recent swing highs in the $1170 area. If nothing else, the bulls are showing some signs of life now as the likelihood of a rate hike has diminished. Recent price action could potentially suggest that a near-term bottom in gold has been reached.
The uncertainty surrounding the Fed and its plans regarding interest rates seems to have lifted currently. While the Fed, at its last meeting, decided to hold off on a hike, last week’s non-farm payrolls data for September will likely give the central bank more to think about.
While the Fed could potentially still decide to act in December, such a scenario seems unlikely at this point. Of course, the Fed will have the chance to examine additional data between now and then. Another weak jobs number next month, however, could not only potentially keep the central bank on hold until 2016, but could possibly keep the Fed on hold longer into the year.
While the notion of the first rate hike coming later, rather than sooner, is likely giving some investors reason to buy, the gold market is also seeing some upside on short covering. According to recent Commitment of Traders report data, some hedge funds and other large market players have been covering short positions. It should be noted, however, that even with recent short covering being seen in gold, overall sentiment surrounding the market remains negative.
While the gold market may potentially have some room to run here to the upside, the question still remains of how the market will react once the Fed does initiate lift-off. Given the notion that the Fed is still likely to act within a matter of months, any significant upside in gold may potentially be met with aggressive sellers. Whether or not gold has enough in the tank to go on an extended run higher remains to be seen. A move back towards $1170 area could provide gold with a good test.
While recent price action in gold has been constructive, the gold bulls have their work cut out for them to take prices significantly higher and to see changes in overall investor sentiment.
