Gold prices are trading near the unchanged level in early action on Monday. The yellow metal is, thus far, maintaining trade above previous resistance at the $1220 level, and some consolidation is likely in store before another potential move higher.
Greece is at the forefront of headlines once again as the country teeters on the verge of default. While some reports have stated that negotiations between Greece and its creditors were beginning to bear fruit, other reports state just the opposite and suggest that a default at this point is highly likely.
The notion of a Greek default will likely keep a floor under gold prices for the foreseeable future. Stocks have continued their ascent in spite of this possibility, although that could change in a hurry should a default actually occur.
The dollar index is seeing a nice bounce higher today after further weakness last week. Risk aversion over Greece may be driving a bid in the greenback, while also likely fueling some short covering. Overall, however, the trend in the dollar remains lower. Further weakness in the currency could potentially help fuel a larger rally in the precious metals complex, while dollar strength may potentially limit gold’s upside potential.
Following poor retail sales data and a number of other weaker than expected economic reports, the scales may be tipping in favor of the dovish camp. This week’s release of the latest FOMC meeting minutes may shed some light on the fed’s course of thinking here, and could potentially have a significant impact on markets this week.
Should the fed signal that it is not likely to raise rates this year, it could possibly send both stocks and precious metals higher. On the other hand, should the central bank indicate that a rate hike is still very much on the table in the coming months, stocks could see some selling come in while gold may hold steady.
Investors, for now, will likely pay close attention to any commentary from the fed, price action in the bond market and new developments regarding Greece.
Gold appears poised for further upside at this point, but lack of previous follow through by the bulls may also be of concern. Gold may challenge some previous resistance in the $1240 area, and a breach above this level could potentially set the stage for a quick run towards the $1300 mark. If gold is able to maintain some upside, it may attract more fresh longs into the market as technical traders and trend followers climb on board.
