Gold prices are slightly higher today to kick off the week on the right foot. Markets in general however, appear to be very quiet today as the summer doldrums have set in.
Overnight, China reported a Q2 GDP reading basically in line with consensus estimates. There were some concerns about this number coming in weaker than expected, and stock markets appear to be sighing in relief. Asian markets were slightly higher overnight while the U.S. stock market is higher again today as well, essentially picking up right where they left off last week.
One has to wonder however, just how much stocks may have left in the tank, and should a larger correction occur how it may effect gold prices. Thus far, investors seem pleased with earnings reports and there does not seem to be any roadblock to stocks moving higher in the near term.
This week is fairly light on data. The market will get readings on CPI, the housing market index, weekly jobless claims, leading indicators, and more. When it comes to the gold market, Ben Bernanke speaking before the House of Representatives on Wednesday will undoubtedly take center stage for the week. Investors will be looking for more clues as to when and how the Fed may begin to implement its exit strategy.
Prior to last week’s FOMC minutes and Bernanke commentary, many thought that the end of the line would be sooner rather than later. That sentiment changed in a hurry and sent stocks and risk assets higher after the minutes were released and also following Bernanke’s comments after the markets had closed. The Fed chairman took a much more dovish tone in his remarks, and now when it comes to Fed stimulus removal all bets seem to be off. Hopefully some more clarity can be gained through Bernanke’s comments on Wednesday.
The dovish rhetoric has seemed to ignite a rally in gold prices. Although the rally has been nothing monumental, the gold market has managed to clear some technical hurdles which could potentially pave the way for more upside. Specifically, gold is trading above its 20 day EMA at the $1280 area.
The market appears poised to test the $1300 area. A solid close above this level, or several consecutive closes above it, could attract fresh buyers into the market. It is also important to remember that many are still short the gold market, and the potential for further upside based on short covering is also present. Should trade pick up above the $1300 level, the next likely target would be gold’s 50 day EMA around the $1350 area.
