Gold prices are trading slightly higher this morning to finish out the trading week. As of this post, however, the price of gold remains below the $1200 level in what appears to be quiet holiday trade. The next several sessions to finish out the year could very well see light volumes and little in the way of price action as investors call it a year.
Gold is seeing some interest amid concerns over the ongoing slide in crude oil prices and the falling Russian ruble. While oil prices are trading a bit higher today, there seems to be more and more discussion of oil prices reaching the $40 per barrel mark. How exactly this might affect stock markets is unknown. Markets have exhibited a great deal of volatility recently as cause for concern has grown with the slide in oil prices. The slide in oil is deflationary in nature, and raises a number of red flags. The high yield debt market is selling off as concerns over a credit driven event caused by lower oil increase.
While oil prices may continue to be at the forefront of headlines, there are other forces at work as well. The Fed this week appeared to be more dovish in its remarks and that could potentially drive some buying in gold and precious metals. In addition to the Fed, it is widely expected that the ECB will take further action to stimulate the Euro zone economy. While this may be already baked into the cake, the dollar index remains strong and currently appears poised for additional upside.
Stocks rallied hard this week following the FOMC meeting as the SP 500 climbed nearly 100 handles in two trading days. Stocks now appear to be headed for more new highs to finish out the year. Whether or not this sense of euphoria lasts remains to be seen, but stronger stocks and a stronger dollar going into year’s end may keep the gold bulls in check-at least for now.
Even with some recent weakness, the technical picture in gold appears to be improving. The market has been making higher lows since trading below the $1140 level back in November. The recent swing high in the $1240 area remains near term resistance. It is possible and actually likely that gold is in a holding pattern until the first of the year. At that time, investors may begin to look to reallocate assets and gold could potentially stand to benefit from increased buying interest. Of course, should stocks remain on the move higher after the first of the year, gold’s upside potential may be somewhat limited.
