The gold market is under some pressure today as stocks are being sold off, crude oil falls and the dollar index loses ground.
Global markets are still paying very close attention to ongoing developments out of China. The world’s second largest economy recently reported some more economic data that was indicative of a slowdown. As has been the case for several weeks now, investors appear to get nervous quickly on further signs of trouble in the Chinese economy.
As of this writing, the broad market SP500 index is lower by nearly 50 points, or over 2.5 percent. The market appears to be headed for a retest of the lows seen in volatile trade a few short weeks ago. A retest of those lows may prove to be a good buying opportunity, or it may potentially see markets make fresh new lows, suggesting further downside may be in the cards.
Thus far, gold has not seen any significant buying on risk aversion. In fact, the gold bulls are likely frustrated that even with stocks getting hit as hard as they are today, a lack of buying interest remains. Not only is gold not being bought today as stocks move sharply lower, but gold is being sold off, as well. Of course, if equity markets continue to move lower in a similar fashion, that could change. For now, however, the gold bulls are likely wondering what it might take to spur a sustainable rally in the yellow metal.
Gold’s lack of upside in the face of falling stocks may be indicative of concerns over rising interest rates. The monetary policy hawks would seem to have the edge right now, and recent data, as well as commentary from Fed Chairwoman Janet Yellen, would seem to indicate that lift-off will still take place this year. The notion of higher rates may potentially keep the dollar moving higher, and the higher dollar may continue to weigh on the gold market.
The gold market may be biding its time until the Fed does in fact take action, however, the market could potentially be setting up for a fresh leg lower in price. While gold has shown some signs of bottoming action in recent months, the lack of any upside follow through remains a concern.
Although gold may remain somewhat range-bound until the Fed does act (or doesn’t), the market could potentially see buying interest increasing if stocks continue lower. If volatility continues to increase, investors may potentially decide to put capital to work elsewhere and gold and other precious metals could potentially stand to benefit.
