Gold prices are moving a bit lower this morning as some profit taking likely sets in. The yellow metal has covered over $40 per ounce to the upside this week, and is currently sitting at a previous resistance level.
Seeing gold prices take a breather here comes as no surprise, and a close around or above the $1220 level today may potentially be indicative of further upside next week.
The gold market has a few underlying bullish factors working in its favor currently. Bond market volatility seen recently has likely made investors a bit jittery. While yields have calmed in recent days, many are wondering if the sell off in bonds is over or if there is more to come.
Questions remain about the potential timing of an interest rate hike in the U.S. Data in recent weeks has been on the soft side. Retail sales data released this week underscores that concern. Given the weakness being seen in some key data points, many are wondering if the Fed is likely to hold off on any hikes for the time being — perhaps even waiting until next year to raise rates.
On the other side of the coin, some other nations appear poised to keep the stimulus flowing. China recently lowered interest rates in an effort to boost its economy. ECB President Mario Draghi has indicated that the central bank will also provide stimulus as long as necessary in order to bring EU inflation levels to more acceptable levels. It is plausible also that the fed may decide to hold off on raising rates until there is more improvement seen elsewhere.
Regarding the recent sell off in bonds, it appears that the bond market believes that inflation has bottomed. Producer price data this week showed no inflation, however, as prices resumed their trend lower. Inflation expectations appear to be changing, however, and these changes could affect bonds, stocks and precious metals.
While the news this week has been a bit more quiet than last, the ongoing cash crunch in Greece is likely to dominate the headlines again in the coming weeks. Greece is likely to run out of money within a matter of weeks, and markets may be bracing for the first default by the country.
Gold may be seeing more buying interest recently as the likelihood of a rate hike in June or September has arguably dwindled, and as uncertainty surrounding Greece remains in focus. The bulls will look to extend the recent rally early next week, and may attract further fresh longs on additional upside.
