Gold prices are seeing some light selling pressure thus far in early Monday morning trade. The gold market may simply be pulling back a bit following the gains seen during Friday’s session. The price action in gold on Friday could potentially lead to more follow through buying as shorts cover and fresh buyers enter the market after the weakness seen in recent weeks.
Friday was an interesting day in the markets following the release of the non-farm payrolls data for March. The jobs number missed consensus estimates just slightly, and markets initially moved higher on the report. As the trading day unfolded, however, stocks took a big turn for the worse as the tech heavy Nasdaq got hammered. There have been many so called “explanations” floating around over the weekend as to why markets sold off the way they did. Some blamed the jobs data and fears over China while others discussed the ongoing crises in Ukraine. It would appear, however, that some of the larger market players are now selling into rallies, especially in some of the more high-flying stocks. Could we be entering the distribution phase? Too early to tell-but certainly worth considering.
Should stocks continue to head South, how might this affect gold? While no one can say for sure we are of the opinion that gold and precious metals could stand to benefit a great deal as investors look to reallocate funds. In fact, we are of the opinion that equity market strength has been one of the primary barriers to potentially higher gold prices.
This week is on the lighter side from a data standpoint. On Wednesday, investors will get to examine the minutes from the latest FOMC meeting. Although nothing really new is expected here, investors will continue to look for any clues regarding the Fed’s economic outlook and monetary policy.
Regarding monetary policy, markets will also continue to closely monitor the ECB and China for any stimulus plans they may decide to employ. The notion of additional central bank action could potentially help support gold and precious metals prices.
While the gold bears are still in control from a technical standpoint, the bulls are showing signs of life. Friday saw gold prices at their highest level in a week,and should stocks weaken further we could potentially see more buying interest. The gold bulls will encounter resistance at Friday’s highs around the $1307 level and then the $1320 level. Near term support may be seen at last week’s lows in the $1280 area.
