Gold prices are showing some good signs of strength today. The U.S. Dollar index is getting hit hard today, and that is one of the primary drivers of gold prices here today to start the week. Investors are also scrutinizing some disappointing data. Over the weekend, China released latest readings on its official purchasing manager’s index as well as the latest HSBC manufacturing PMI.
Although the purchasing manager’s index edged up, the manufacturing data disappointed as the May reading fell below that of April. Here in the U.S., investors got the latest reading on ISM manufacturing. The reading came in at 49% well below expectations of a 51% reading.
Not only was this number lower than that of April, but any number below 50% shows business is not growing but actually contracting. It was reported that new orders and production shrank thus causing the biggest business contraction in nearly four years. This certainly does not appear to be a good development when the Fed appears to be getting ready to take its foot off the gas in terms of stimulus.
This weak data, along with softer Chinese data and what has occurred in Japanese stocks in recent weeks possibly be a sign of things to come. As a matter of fact, the U.S. stock market is finally showing some signs of cracking.This does not necessarily mean that we will see a large scale sell off, but it could indicate that many people are now willing to cash in and once again we may see investors looking to put money to work in other areas. This could potentially be a huge benefit to the precious metals markets.
As of this post, gold has in fact reclaimed the $1400 level on short covering and what appears to be fresh buying entering the market. Demand for physical gold has remained strong although some premiums have contracted in recent weeks. It would appear that the softness of recent data is adding to speculation that the fed may take its time in scaling down its bond purchases, and thus the greenback is continuing to sink as we speak. This would be a gold positive, as a weaker dollar tends to boost gold’s appeal.
Not much has changed from a technical standpoint. The gold market continues to be confined to a range since re-testing the April lows and holding. The market does appear to be making higher lows which could be a bullish indication. Should price be able to take out last week’s highs, we could see gold run a bit. Perhaps a test of the 50 day EMA around the $1460 area. It is likely however, that prices remain somewhat contained as investors await the biggest report of the week in Friday’s non-farm payrolls report. This data could be the deciding factor when it comes to gold prices for the foreseeable future as it can dramatically impact the stock market as well as the U.S. dollar.
