Posted on June 24, 2013
Gold prices are under some pressure here today to begin the week. Following a slight rebound in prices on Friday, the yellow metal is taking its cues largely from outside markets today as investors are continuing to shed risk.
Overnight, the Shanghai index lost a whopping 5.3% on fears of a liquidity crunch. That investor pessimism and fear spilled straight over into U.S. markets overnight and this morning. Although it is currently well off its intraday lows, the broad SP500 index is currently trading down over 21 handles and almost 1.5%. In spite of this nasty sell off, interest rates have thus far risen sharply today.
With the exception of the U.S. dollar, there does not appear to be any individual asset class that is gaining any benefit today from a flight to safety bid. Although the dollar is up today, the U.S. dollar index is only up moderately on the session and conversely the Euro is clawing its way back from the lows of the day.
Investors will be paying particularly close attention to the data stream this week. Should any moderate weakness be seen in the data, it could potentially give investors reason to think that QE may stay longer than it is currently expected to.
The markets will have no shortage of data to scrutinize as this week investors will get the latest readings on durable goods, new home sales, consumer confidence, GDP, weekly jobless claims, pending home sales, Chicago PMI, and consumer sentiment. In addition to the data being released, investors will also here commentary from various Federal Reserve members.
While all of the data is important, we feel that the GDP reading, along with the weekly jobless claims and housing data, could potentially have the largest impact on the gold market. There have been some concerns in recent weeks about housing specifically-and the fact that interest rates have continued to rise with the ten year note now yielding 2.6% .
This rapid rise in interest rates is not going to help the housing market any as mortgage applications will likely fall. Should the markets get an indication that housing is indeed suffering, then it is possible that gold could be bought based on the notion that the Fed may hold off a bit longer on tapering.
Likewise, should GDP or weekly jobless claims disappoint, one could make the same argument that the Fed may hold off a bit longer. For now, the gold market is simply trying to regain its footing as the bears are in control. The market has become oversold however, and a large bounce to the upside in prices will come as no surprise should it occur asthose who are short the market look to unwind positions.