Market Overview: The gold market is moving slightly higher in early action on Friday as global stock markets are under pressure and risk aversion is on the rise. Markets are coming to grips with the prospect of slow global growth and declining crude oil is also likely driving some selling in equities today.
Key Data Points: Today is a light day for U.S. economic data. The most recent reading on Consumer Sentiment showed sentiment remains high, registering a reading of 94.3. Consensus estimates were looking for a reading of 94.5.
While this report may be considered favorable overall, the decline in inflation expectations is a cause for concern. One year expectations remained unchanged at just 2.4 percent, however, the five year expectations saw a steep decline of 2 tenths of a percent to just 2.3 percent.
In the current global economic backdrop, the inability to spur inflation will likely remain a key issue for the Fed and other central banks.
Investors will now turn their attention to next week, with more data to be released and the June FOMC meeting.
Outside Markets: Stocks are under pressure today after challenging previous all-time highs. The broad market S&P 500 is attempting to hold the 2100 level today, and some profit taking is likely being seen. As long as stocks remain close to these previous highs, the market is in a position to potentially begin a fresh leg higher. Ongoing low rates and very accommodative monetary policies may keep a floor under equities for some time to come as investors seek yield.
Crude oil has fallen below the psychologically important $50 per barrel level today, and has been seen frequently in recent months, investors appear to be taking cues from the crude market.
Following some recent steep declines, the dollar index is seeing a bit of a bounce today. The greenback remains vulnerable, however, to a retest of the May lows. A breakdown below those levels could potentially see a significant fresh leg lower in the dollar and could potentially fuel appetite for gold, silver and precious metals.
The Big Picture: Gold is within striking distance of recent highs, and a breakout above those levels could potentially see more investors jump on the bandwagon. The gold market may also potentially benefit from any further weakness in the dollar. Of course, stocks and the dollar could potentially see some volatility next week as the FOMC meeting approaches. The Fed’s commentary next week will likely be the main point of focus for markets, and changes in interest rate expectations could potentially have a significant impact on markets.
