Gold is seeing some buying interest as stocks rally and the dollar weakens. The dollar index has remained the center of attention for the gold market and precious metals complex in recent weeks, and any reprieve in the greenback’s ascent may help gold find more solid footing.
After reaching its highest levels in 12 years last week, the dollar index is seeing a corrective pullback likely fueled by nothing more than profit taking. While the euro is seeing a bit of a bounce today, any rallies in the shared currency may prove to be short-lived. That being said, there are large short positions in the euro and the potential for a sizable short covering rally is considerable.
Oil is seeing some weakness today, and there are renewed calls for lower crude prices. In fact, some analysts believe that oil prices are still headed for the $30 per barrel mark. While stocks have held in there in light of oil weakness, it is possible that equities may come under some pressure should oil begin another leg lower.
While the oil weakness is due primarily to a simple supply/demand issue, the recent dollar strength is not doing oil any favors.
This week will be fairly busy from a data perspective. Markets will get the latest data on industrial production, the housing market index, weekly jobless claims, leading indicators and housing starts. On Wednesday, the FOMC meeting will conclude and investors will be looking for further guidance as to the timing of the first rate hike, expected to come in June or September. In addition, the central bank will also release its quarterly forecasts. As with previous FOMC announcements, investors may focus on the term “patient” being present in the Fed’s statement. Should the Fed drop this term, it may send markets a clear signal that the first rate hike is imminent.
If the Fed indicates that rates are going up, stocks may see some selling pressure. This could potentially work to gold’s advantage.
The gold market remains on its heels, however, and further downside appears to be a good possibility. The recent break below significant support has potentially set the stage for another sizable leg lower in gold prices, and $1000 per ounce gold is a realistic potential target for the bears.
Although the U.S. is getting ready to begin hiking rates, other central banks are easing. China, for example, may initiate further stimulus measures in order to keep its economy growing. Easing measures by other central banks may help offset some of the potential bearishness of a U.S. rate hike.
