Gold prices are slightly lower in early trade on Monday and are flirting with the $1200 level. The stock market is slightly higher as well as crude oil while the dollar index is also in the green.
Following the recent FOMC announcement and Fed minutes, markets are still considering the implications of a potential rate hike. While some analysts still believe that a rate hike in June or September is still in the cards, others believe that after the recent disappointing non-farm payrolls data the Fed may elect to hold off for a period of time. This debate will likely continue until more clarity is seen from the Fed. Data being released over the next several weeks will likely play a large role in the Fed’s decision-and markets will be watching the data closely. In addition, next month’s non-farm payrolls data will be closely scrutinized. Should hiring rebound, it may pave the way for the central bank to act. Should the number disappoint again, however, the Fed may decide to hold off.
The potential for the first rate hike appears to be priced into the gold market already, and the bulls also seem to be fading once again. A move back below the psychologically important $1200 level may trigger further selling as the bulls have thus far not been able to put together a sustained rally.
The gold market is also watching currencies closely. After seeing some downside on profit-taking, the dollar index has since rebounded and appears to be getting ready for a fresh leg higher. Should this prove to be the case, the gold bulls may have a tough time and a new fresh leg lower in gold prices may potentially be seen.
Also possibly weighing on gold is the strength being seen in equities once again. The SP500 is back at the 2100 level today, and may be poised to challenge its all time highs once again. Stocks may, however, be moving higher on the notion of the Fed holding off on rate hikes. In addition, stocks may also be getting a lift from the idea that any rate increases by the central bank will be limited.
The ongoing negotiations between Greece and the EU may, however, provide gold some degree of support. Thus far it appears that talks have not produced much in terms of results. As the end of the four month bailout extension gets closer, investors may get more anxious and gold could potentially benefit on the uncertainty surrounding the situation.
