Gold prices are trading slightly higher in early trade on Friday. The gold market is attempting to snap a three day losing streak that quite possibly spells out the end of the recent rally. Today’s higher prices may prove to be nothing more than a short-term corrective bounce following yesterday’s losses in gold.
Stocks are a bit weaker this morning while interest rates are falling and gold is slightly higher which could suggest some investor angst going into the weekend. Perhaps the biggest headline that markets are dealing with today is news that a doctor in New York has been diagnosed with Ebola. This is the fourth case of the virus diagnosed in the United States and nerves are running fairly high. Three associates of the doctor have now been quarantined and worries over the potential spread of the virus are increasing. While there has been no panic and risks to the general public are actually quite low, the uncertainty surrounding the containment of the virus may keep perceived safe-haven assets such as gold from falling too far in the near-term.
The Euro zone continues to be a source of anxiety as well. Over the weekend, the EU will report the results from its financial institution stress tests. The issues that the EU is currently dealing with have come back into the spotlight as the ECB tries to fight ongoing deflationary pressures and a slowing economy. The struggles in the EU may keep the shared currency on the defensive and the dollar on the offensive. While a higher dollar may lessen demand for gold, should the situation escalate or if there are significant problems found at EU banks then gold could possibly benefit on safe-haven demand.
Gold has reversed course as equity markets have rebounded. Following recent volatility, the SP500 index has climbed over 125 points from the lows seen just over a week ago. Stocks are in the middle of third quarter corporate earnings and many companies have shown solid earnings growth while beating consensus estimates. This is likely helping to fuel the rebound in stocks and investor sentiment. Funds have been flowing out of gold and back into equities suggesting that investors are back in risk on mode-at least for now.
Gold will likely stay under pressure as stocks continue to move higher and the dollar rises ahead of next week’s FOMC meeting. Although the Fed will likely retain much of its dovish tone from the previous meeting, it is unlikely that the Fed will have a significant impact on gold prices to the upside. The $1183 area in gold remains the line in the sand and a breach below this support level would likely signal a significant leg lower in prices.
