Gold prices are slightly higher this morning as the trading week nears an end. The dollar index is trading lower while stocks and oil are moving up.
Clearly the highlight of the past week was the FOMC announcement and the central bank’s commentary. The removal of the word “patient” from the Fed’s language does not seem to have given the all-clear signal for the Fed to begin hiking rates.
Fed Chairwoman Janet Yellen took the time to state that just because this word had been removed does not mean that the central bank will no longer be patient. In fact, the Fed appears to acknowledge that there may be a long road ahead, and any increases in rates are likely to be very gradual.
While the idea of a rate hike coming in June or September has been discounted by the markets, the notion of rates staying lower for longer appears to have appeased investors. Stocks are possibly headed back toward contract highs, while gold has seen some buying interest and short covering.
Perhaps most importantly for gold right now is the pullback being seen in the dollar index. The buck dropped on the Fed news as many longs likely got out or took profits on the idea of rates staying low for an extended period of time. While the pullback currently underway is minor thus far, any respite from the dollar strength seen in recent months may bode well for stocks and gold.
Should stocks begin to make new all time highs again, however, gold may see limited buying interest. In addition, if crude oil prices continue to work lower interest in precious metals may be subdued.
The bears remain in firm control of the gold market, and the rally seen this week is thus far modest and likely primarily fueled by short covering. The bulls have a great deal of work to do in order to sway the tide.
One potential catalyst for the gold market could be the ongoing negotiations between Greece and the EU. While the four month extension of the country’s bailout package has bought some time, the parties still appear to be far apart on the issues, and that four month extension will have gone and gone before long. As the deadline approaches, if there is not significant progress being seen or if there does not appear to be a deal in the works, investors may begin to get very nervous once again. This could potentially cause wild fluctuations in the currency markets, stock volatility and increasing risk aversion.
