Gold prices are flat to slightly lower here Friday morning to finish out the trading week. The gold market has certainly had an interesting last few days, and we have to wonder if this is potentially an indication of more to come.
The geopolitical landscape has heated up considerably this week. Reports suggest that Russia has amassed troops along the Ukrainian border, perhaps in preparation for an invasion. In addition, it is expected that Russia will attempt to counter U.S. and allied economic sanctions with sanctions of its own. This situation currently appears to have no end in sight and may keep risk aversion alive and well until a solution is found.
The cease-fire that was in place this week between Israel and Hamas is over-and the rocket firing has begun again. The fighting in Gaza has raged on for about a month now, and like the situation in Ukraine, does not appear close to any type of long-term solution.
As if these two situations are not enough, yesterday President Obama authorized U.S. airstrikes in Iraq which are now taking place as we speak. The airstrikes are intended to be limited in scope, and the U.S. says that it is not getting into a full-scale re-engagement in the country.
So, there are three if not more potential powder kegs for markets to deal with right now. Although risk aversion has been noticeably higher in recent weeks, markets do not appear to be too concerned today. Perhaps that is because of some better-than-expected U.S. data released this morning.
Stocks are moving slightly higher this morning after taking a large dip under the 1900 level on the SP overnight. Gold and silver are flat while oil is moving slightly higher. The dollar index is also a bit on the weak side this morning. Given the current geopolitical backdrop, and the potential for headline risk over the weekend, it will be interesting to see if stocks hold gains through the close today and if gold and metals stay flat. It is entirely plausible that gold is simply taking a breather following the gains seen this week, and is preparing for another potential run higher in the coming days. That being said, the gold market is susceptible to headline risk as well-or lack of headlines. Should current tensions simmer down a bit, gold may struggle to hold recent gains.
All in all, the fact that gold appears to get bought on dips below the $1300 level is encouraging. The bulls must, however, put some distance between price and this level.
