Gold prices are moving higher today as the market attempts to regain its footing following heavy losses seen on Friday.
Gold saw heavy selling Friday following the release of the non-farm payrolls data for February. The data came in better than expected, and may be a large factor in the Federal Reserve’s upcoming decision on interest rates. Gold got clobbered while stocks also lost ground. The jobs report is fueling speculation that the central bank will begin raising interest rates at its June meeting.
While the notion of higher rates has been considered by markets for some time now, it appears that as we approach the actual beginning of the tightening cycle investors are getting more nervous. It is unclear how stocks will react once the Fed does act, however, looking at Friday’s price action it seems reasonable to say that stocks could potentially see further pressure. Should this prove to be the case, gold could potentially see more buying interest.
In the meantime, the gold bears are in firm control, and with Friday’s slide in prices the stage has been set for further downside. While nothing is set in stone, the fact that the market broke support around the $1180 level could potentially drive gold down to another support level around the $1140 area. Should this level not hold the sellers, the gold market could see another sizable drop and $1000 per ounce gold is not out of the question.
The euro currency will likely stay on the defensive as the EU begins a 1 trillion euro bond buying program. The shared currency has continued to slide in recent weeks, and appears headed for parity with the U.S. dollar. As the EU continues to try and combat deflationary pressures, the region is also dealing with the possibility of a Greek exit from the union. While their current bailout package has been extended by four months, it remains unclear if a deal will be reached and investors will continue to monitor this situation closely.
This week is lighter from a data standpoint, with PPI, retail sales and weekly jobless claims highlighting the economic data calendar. Any positive data may weigh on gold as the reality of a rate hike sets in.
If gold can make a quick run back above prior support at $1180, it may cause some shorts to cover and slow the current tide. If it cannot, however, ongoing selling pressure could see gold prices drop to the $1140 area quickly.
