Gold prices are lower to begin the trading week as stocks try to bounce back from last week’s selling. Oil is moving lower this morning while the dollar index is slightly higher.
Last week saw some big selling pressure in the stock market. The significant drop in crude oil prices has caused a great deal of anxiety among investors. In addition, the notion of the Fed acting sooner rather than later with regards to interest rates likely has caused some profit taking. Whatever the cause may be, lower stocks may hold the key to higher gold and precious metals.
That being said, however, the gold bulls have thus far not been able to put together a sharp rally. Even as stocks plunged last week, the gold market did not show much of a reaction at all and seemed content at or around current levels. This could be due to the fact that markets are going into year end at this point and could also be due to the fact that investors are awaiting this week’s FOMC announcement before acting. Whatever the case may be, the gold market is trending higher but thus far has also lacked an impressive single or multi-day rally.
This week’s FOMC announcement will likely be the focal point of the trading week. While no changes in rates are expected at this point, investors will be paying close attention to the Fed’s language and commentary. It is expected by some that the central bank will change its language to reflect a more hawkish stance on economic conditions. In addition, investors will be looking for guidance as to when the tightening cycle may begin.
This week also features Philly Fed data, CPI, housing data, manufacturing data and weekly jobless claims. In addition, this week is quadruple witching which can potentially add to market volatility.
Going into the final trading sessions of the year, precious metals will likely continue to be driven by stocks, the dollar and oil prices. Stock weakness may lead to increased interest in gold while dollar strength and oil weakness may try to limit gold’s upside. The tightening cycle is also on the horizon at this point. While many believe that the notion of higher rates is bearish for gold prices, one can also make the argument that gold may see renewed interest once the cycle does begin. It’s no secret that the Fed will begin to tighten rates, but the reality is that rates will likely stay low for some time. Once the central bank does act, investors will likely focus more on the timeline of rate hikes rather than the initiation of rate hikes. This could potentially work in gold’s favor.
