Gold prices are experiencing some weakness again today, and are trading at an eight month low. The technical picture in gold remains decidedly bearish, and without some type of bullish catalyst coming into play, the gold bears may carve out another fresh leg lower in the coming weeks and months.
While many had believed that the ongoing saga in Greece could potentially keep a floor under gold prices, that floor is apparently collapsing. Greece was able to secure terms of a new bailout agreement this week, and while it remains to be seen if the country can and will adhere to those terms, markets are, for now, breathing a collective sigh of relief.
Fears over a Chinese stock market collapse have also largely subsided, at least for now, and investors may be quite comfortable with risk assets in the near-term.
Adding to gold’s downside pressure is a more hawkish sounding Fed. Federal reserve Chairwoman Janet Yellen has reiterated that the central bank still plans on hiking rates this year. While this was likely already discounted by the precious metals complex, the Fed’s tone appears to have changed slightly. This may keep some buying interest in the dollar, and a stronger dollar in recent months has likely had a significant negative impact on gold and precious metals.
According to data released this morning, consumer prices saw and increase of .3 percent. The year-over-year core reading registered at 1.8 percent. While these numbers are by no means staggering, they do show that price pressures are inching up ever so slightly, as the Fed has predicted. The 1.8 percent core reading is approaching the central bank’s two percent target. This data further reinforces the Fed’s position on raising rates in the near future.
With a clean close below prior support in the $1140 area, the stage may be set for another significant drop in the price of gold. In fact, another leg lower could potentially see sub-$1000 per ounce gold in the coming months. While a rapid bounce-back in gold prices is possible, it seems unlikely at this point. The gold market is oversold in the near-term, however, and may see some upside bounces on profit taking and short covering. Any significant rallies that this point, however, will likely be sold into.
While further downside may be in the cards for gold, things can and do change quickly. Further volatility in Chinese equities, or new developments in Greece could potentially halt the yellow metal’s slide.
