Gold prices are trading slightly lower thus far on Friday morning in what will likely be a very light volume trading day. It appears investors have already begun their Labor Day holiday weekends. Trading volumes have seemed on the light side all week, as the unofficial end of summer is now upon us.
The gold market has been hanging on to support in the $1280 area. In fact, since trading slightly below this level earlier in the week, the yellow metal has found some buying as bargain hunters step up and short covering takes place. Gold is clearly in a downtrend, however, and the bulls must take prices back above the psychologically important $1300 level. Gold is in danger of breaking support around this week’s lows, and should it do so the price of gold could fall to $1240 or so in a hurry.
Market participants seem to be a lot more at ease currently in light of the current geopolitical climate. Increased fighting between Ukraine and Russia does not appear to be putting much of a dent in risk appetite at this point, and one has to wonder why gold is not seeing more of a bid given the situation.
Stocks may be at a near-term peak according to some analysts, but the bull market in equities may have more room to run. The SP 500 has now printed the big, round 2000 level and may potentially pull back before going on another run higher. Whether or not gold will benefit from a pullback in equities remains to be seen. The fact is that the economy continues to show signs of improvement, and gold does not seem to have enjoyed the perceived safe-haven status it has enjoyed in the past. In addition, gold has seemingly lost a great deal of sensitivity to geopolitical events and influence, and there simply does not appear to be a catalyst that is compelling enough right now for the gold bulls to put together a sustainable rally. In fact, with improving economic data comes the greater likelihood of a rate hike. In an environment of rising interest rates, gold may become less and less attractive.
In addition to the notion of higher interest rates, the ECB will likely continue to battle deflation and a slowing economy. This may keep pressure on the Euro and keep the dollar index well-bid. A higher dollar may prove to be another roadblock to higher gold prices. All things being equal, the possibility of lower gold is very realistic at this point. The market will, however, remain sensitive to headline risk.
