The gold market is moving slightly higher in early trade today as stocks trade flat and crude oil declines. The dollar index is moving lower this morning.
Following a good bounce in the last couple sessions, the dollar index could potentially be rolling back over for another test of the recent lows. The greenback is getting precariously close to a breakdown that could potentially see prices slide much further. Such a breakdown could potentially give gold a large boost and precious metals investors will likely pay close attention to the dollar index in the coming weeks and months.
Of course, Fed policy could have a significant impact on the dollar index if the central bank decides to become more aggressive in its stance on interest rates. For now, however, it seems that the pace and extent of further rate hikes is likely to remain slow and gradual.
Overnight, news out of China was taken in a positive light and could potentially point to stabilization in the world’s second largest economy. China reported that Q1 GDP grew at a rate of 6.7 percent, inline with expectations. While for China this rate is the slowest in some time, some may now be getting the sense that the stimulus measures employed by China in recent months are having some effect.
While U.S. stocks are essentially flat today, the news out of China could potentially drive further buying and appetite for risk. Stocks are not far from previous all-time highs and it would seem that a test of those highs may be in store. Whether or not stocks can surpass those levels and begin another new leg higher is becoming an increasingly popular subject of debate. There are a number of issues that could potentially be considered bearish right now, such as a stronger yen, low oil prices and possibly overvalued equities.
While gold may see relatively range bound trade or even lower prices if stocks do breakout, a stock breakdown could potentially fuel another significant leg higher in the price of the yellow metal.
Gold has performed well in recent weeks given the rally that has been seen in stocks. This could potentially be a sign of underlying strength in the gold market as well as an indication that some investors believe a return to volatility will be seen in equity markets.
Gold has been in a fairly tight range of about $80 per ounce for the last couple of months now and could see a breakout or breakdown sometime in the near future.
