Gold prices are moving slightly higher in early trade Friday. Stocks are moving slightly lower while crude oil is also lower and the dollar index is in the green.
The dollar index has been a source of much discussion and investor anxiety this week. The greenback is trading at its highest level since 2003. The dollar has been moving higher as concerns over a potential Greek exit from the euro as well as ongoing economic difficulties in the region weigh on the shared currency. In fact, the euro has slid dramatically in recent days, and the speed of the dollar’s ascent is what makes it really unnerving for investors.
Gold prices have not been able to stage any significant rally in spite of dollar strength. The strength being seen in the DX is likely one of the major factors driving gold prices lower currently. Gold has broken some key support levels recently, and the likelihood of further downside is significant. Unless the the bulls are able to stop the bleeding, $1000 per ounce gold is a possibility in the near future.
It has become pretty clear that the Fed will likely begin raising interest rates in June. While this initial rate hike seemed baked into the cake, perhaps gold investors are also now reexamining the notion of higher rates.
Recent PPI data was released earlier this morning that showed inflation pressures to remain non-existent. PPI was .5 percent lower while consensus estimates were looking for .2 percent rise. While the lack of inflation had been discussed as a potential reason that the Fed may hold off on raising rates, it appears now that the central bank is confident in the future prospects of inflation and will begin to hike regardless. Without any inflationary pressures, the gold bulls have one less piece of ammunition in their arsenal.
The gold market has been looking for a bullish catalyst and has thus far not found one. The current situation in the EU, the Russian conflict and potential global growth worries have not been able to drive significant buying in gold. Perhaps the stock market holds the keys to higher gold. While the market has seen increased volatility recently, and is off its highs, investors still appear to want to enter the equity markets from the long side. Until this changes, gold and precious metals may have a difficult time putting together any significant rallies. That being said, should gold reach the $1000 level it may potentially see a great deal of buying interest as investors now appear comfortable sitting and waiting for potentially lower prices.
