The gold market is under some pressure today as stocks and crude oil move slightly higher, while the dollar index also strengthens.
Gold prices are not far from 5 and a half year lows, while the silver market is currently trading at six year lows.
The gold market continues to see selling pressure following recent indications from the FOMC that an initial rate hike would be seen next month. While a mere 25 basis point hike may not have much actual effect on global markets, the notion of higher rates is taking a toll on precious metals investor sentiment.
The dollar index has continued its uptrend in recent action and is currently trading just below the 100 mark. A clean break above this level could potentially see further upside in the greenback and another significant leg higher may be seen in the coming months. This dollar strength is likely weighing on gold and the precious metals complex and may provide a degree of upside resistance for commodities in general.
The gold market is not getting any help from key outside markets. Crude oil prices have slipped back down near the $40 per barrel and could potentially see another significant leg lower before the selling subsides.
The copper market, which is considered by some to be a good economic barometer, continues to decline with seemingly no end in sight. “Dr. Copper” is at its lowest levels since 2009 and may once again approach the $1.50 level.
Lower crude oil and lower copper prices both potentially point to deflationary pressures remaining in play. While the notion of deflation taking hold does not appear to be fazing equities, — at least not yet — it is a cause for concern.
Stocks remain close to all-time-highs once again and the “Santa Clause” rally may already be in play once again. It remains to be seen, however, how stocks will react once the Fed does, in fact, initiate lift-off.
Equity investors may simply be acknowledging the notion that rates are not likely to rise by much anytime soon and stocks may be more appealing to investors as strength can attract buyers.
A final, significant leg lower in gold could potentially now be under way. The $1000 per ounce mark is a realistic possibility at this point and gold could potentially see a final washout before finding more stability.
Price action in precious metals will likely continue to be driven by the Fed and its plans regarding interest rates, as well key outside markets and overall risk appetite or aversion.
