Gold prices are moving slightly higher in early trade this morning as stocks climb, crude oil falls and the dollar index moves lower. The gold market traded over the $1300 mark earlier, but has since come off of the session highs.
The gold market has a number of issues currently working in its favor. Perhaps the biggest issue right now is the declining dollar index. The greenback is currently testing the lows seen last August and could potentially be on the verge of a major breakdown. A downside breach of the August lows could potentially fuel a fresh wave of selling that could possibly drive the dollar index several cents lower from current levels.
Although equities are higher this morning in early trade, some volatility has been seen in the stock market and domestic stocks may be facing some significant resistance around current levels. The broad market SP500 has covered a significant amount of ground since February with only some minor pullbacks. Any sustained selling in stocks could potentially spell the end of the rally and increasing risk aversion may be seen possibly driving more interest in gold and silver.
The Japanese Yen continues to push higher after the BOJ elected to take no action at its most recent policy meeting last week. The stronger yen has driven selling in Japanese stock markets and that selling pressure has been spilling over into other Asian markets as well. The Japanese currency is often viewed as a barometer of risk appetite or aversion, and a stronger yen could potentially be indicative of anticipated volatility in global stock markets.
The gold market is in the midst of an upside breakout, and the ongoing strength in gold appears to be attracting more buyers. One could make the argument that a long-term bottom in gold has been reached, and any dips in gold may be bought unless a significant degree of ongoing selling is seen.
Investors will continue to look for any clues from the Fed regarding the pace and timing of additional interest rate hikes. In the meantime, investors this week will get the latest readings on ISM Manufacturing, Construction Spending, MBA Mortgage Applications, Factory Orders, ISM Non-Manufacturing, Weekly Jobless Claims and PMI Services Index. Perhaps the biggest data point of the week, the employment report for April will be released Friday. Consensus estimates are looking for 200,000 jobs added and a slight dip in the unemployment rate to 4.9 percent.
