Gold prices are pushing lower this morning as positive economic data and higher stocks take their toll. The gold market is currently testing the $1200 level, and looks poised to stage a downside breakout of a bearish descending triangle pattern that could potentially see prices drop by another $200 per ounce.
This has been a very busy week from a data standpoint, with the big enchilada being the release of the non-farm payrolls data for September. According to the Labor Department, the U.S. added 248,000 jobs last month while the unemployment rate dipped to 5.9 percent, its lowest level since 2008. Not only did this number beat expectations by a significant amount, but the jobs for August were revised as well demonstrating stronger hiring. Today’s numbers are being referred to as “solid” and are a welcome positive sign of economic activity. After this very busy week in which some of the data was not so great, one has to wonder if today’s NFP data may help stocks stabilize and perhaps turn higher once again in which case recent volatility and downside has been nothing more than a buyable dip.
The U.S. Dollar Index has moved sharply higher on the data and is currently sitting at four year highs. This ongoing dollar strength is likely playing a large role in gold’s weakness and does not appear to be running out of steam any time soon. Conversely, the Euro currency is significantly weaker as calls for more action from Mario Draghi and the ECB to fight a slowing economy pick up momentum. Unfortunately for precious metals, the rally in the greenback could have a lot more room to run and may prove to be a formidable obstacle to any sustainable rallies.
In other outside markets, crude oil continues to weaken and is currently trading around the $90 per barrel mark after dipping below $90 yesterday. Weaker oil prices may also weigh on gold as the fear of price inflation decreases. Further weakness in black gold may potentially drive further selling in the yellow metal.
The precious metals markets seem to have a lot of things working against them right now. The gold chart is suggesting that further downside is on the way. The market has, however, also gotten to be extremely bearish. This sentiment may potentially mean that a sizable short covering rally is in store at some point. In other words, the market could also be getting close to the point at which there is simply no one left to sell.
