The price of gold is kicking off this week with a bang. Overnight, gold prices rocketed higher as a weaker dollar and higher crude oil prices have lent support to the market. It did appear that in the overnight action stops were run as shorts scrambled to cover and fresh buyers entered the market. We have been anticipating this type of move, and now the biggest question is how far will prices be able to go?
Although no one can answer that or see the future, we feel that prices could potentially move higher again to the tune of $100 or more. It seems that Ben Bernanke’s recent commentary has markets believing that the Fed’s stimulus program is here to stay for a bit longer than expected. This notion is putting the U.S. Dollar index under pressure, and is fueling a “Risk-on” mentality.
Although markets are feeling confident about the Fed currently, investors will be watching the data stream very closely. This week is fairly light in terms of data release. Markets will get the latest readings on existing home sales, new home sales, durable goods orders, consumer sentiment, and some manufacturing data. It is likely that the gold market will be watching how the dollar responds this week as well.
Crude oil prices will continue to be watched closely as well. Crude oil has softened a bit this morning as of this post however, the market is in a strong uptrend and should it continue to work its way higher it could be a big positive for gold prices as investors begin to re-think inflation.
From a technical perspective, the gold market looks poised for more upside. While we are not in the business of trying to call tops or bottoms, we feel that the low reached at the end of June could potentially be the low-at least for some time to come. We have maintained that from a fundamental standpoint nothing has really changed when it comes to the gold market.
We feel that because the fundamentals remain in place for potentially higher gold prices, the possibility of the lowing being in is worth considering. We suspect that with the current upside breakout under way, prices are likely to test the 50 day EMA at the $1335 level. This will be a real battle ground as many intermediate term traders buy above it and sell below it. Should the gold market be able to take this level out to the upside, we could see a lot of additional buying as more shorts are taken out of the market and fresh buyers come in not wanting to miss the potential move higher.