The gold market began the new trading week on the firmer side as a degree of risk aversion set in following the failed oil producers’ meeting over the weekend in Doha, Qatar. Stocks started out this morning on the defensive, but have since recovered and are in positive territory.
The crude oil market had been seeing some fresh buying interest as well as short covering going into this weekend’s highly anticipated meeting. Oil has, however, been under some pressure since news of the failure broke and is currently trading back below the $40 per barrel mark.
While hopes for a deal to curb production were high, reports suggest that Saudi Arabia demanded that Iran cut production as well. Iran would not agree, reiterating its position of wanting to get back to pre-sanction levels of output.
With a significant supply still available, the failure of a deal being reached is a decidedly bearish factor for crude oil. The oil market has clearly been pricing in some type of production cut or limit and the lack of an agreement could potentially send oil prices skidding lower once again.
Stocks have closely followed the oil market for some time now, and this morning was no different as oil sank over $2.00 per barrel. Crude has pared its losses throughout the morning, however, and is down less than a $1.00 per barrel as of this writing. Stocks have likewise seen buyers step in, and the broad market is currently moving higher on the day.
Gold has been in a relatively tight trading range for the last several weeks as investors await more inputs. Further data from China, the world’s second largest economy, as well as additional clarity on the pace and timing of further interest rate hikes may be desired by investors before making any big moves.
After seeing a bounce last week, the dollar index is under pressure again today and is likely contributing to the buying being seen in gold today. The greenback will also likely be significantly affected by any decisions from the central bank regarding interest rates and for now remains in a clear downtrend. Further weakness in the dollar could potentially be a strong catalyst for higher gold prices.
The gold market has remained strong in spite of stronger equity markets in what could be considered an encouraging sign for the bulls. The bulls must challenge the recent highs in the near future, however, or the market may become more vulnerable to a meaningful selloff.
