Gold prices are slightly higher to start the week off as the the initial reaction to Friday’s non-farm payrolls data has apparently run its course. Gold prices did move slightly lower last night, but it would seem that the near term selling has exhausted itself for now, and some are choosing to cover short positions as some bargain hunters step in and buy.
Looking at a multitude of headlines and commentary following Friday’s jobs data, it does appear that the investing public feels that the Fed is likely to act sooner rather than later. This would explain the sell-off in gold prices following the data, and it may well explain why prices fall further should that prove to be the case. This debate may go on for some time still however, one cannot deny that the period of super easy money is likely coming to an end.
Whether the Fed begins pulling back in September, or in the coming months, it seems that the loose policy party is over. What we do not know is how markets will react once the Fed does actually take action. Stocks, at least for now, seem to be in a place where they are likely to go higher no matter what. Whether it is justified or not is irrelevant. Will stocks be able to maintain their ascension once the punch bowl is removed? That is an entirely different question.
How will this effect bullion prices? No one knows that either. What we do know however, is that people seem to be chasing the stock market right now and therefore dumping assets such as gold. Although we do not expect this trend to go on forever, it is impossible to say when it may reverse. Perhaps once the liquidity pump is turned off, we will get a more accurate assessment of stock values and should the market decide that stocks are currently over-valued we could see a large scale return into hard assets such as gold.
The fact is we do not know what the catalyst will be for a large gold rally, but we do believe we will see one at some point.Inflation could be the wildcard. Although there does not appear to be any inflation currently, that can change quickly. With the multiple years of loose monetary policy and money printing it is difficult to imagine that inflation does not rear its ugly head at some point.
That is one such scenario in which those who bought gold at lower price levels will be happy they did so. For now, gold prices could see additional downside as the trend remains lower. As we have stated previously, we see further declines in the price of bullion as simply an opportunity for long term investors to add to physical holdings at more favorable price levels.
